KINDS OF CHARTER PARTIES
PhilGen now
G.R. No. 114167 July 12, 1995
COASTWISE LIGHTERAGE CORPORATION, petitioner, vs.
COURT OF APPEALS and the PHILIPPINE GENERAL INSURANCE
COMPANY, respondents.
RESOLUTION
FRANCISCO, R., J.:
This is a petition for review of a Decision rendered by the Court of Appeals,
dated December 17, 1993, affirming Branch 35 of the Regional Trial Court,
Manila in holding that herein petitioner is liable to pay herein private
respondent the amount of P700,000.00, plus legal interest thereon, another
sum of P100,000.00 as attorney's fees and the cost of the suit.
The factual background of this case is as follows:
Pag-asa Sales, Inc. entered into a contract to transport molasses from the
province of Negros to Manila with Coastwise Lighterage Corporation
(Coastwise for brevity), using the latter's dumb barges. The barges were
towed in tandem by the tugboat MT Marica, which is likewise owned by
Coastwise.
Upon reaching Manila Bay, while approaching Pier 18, one of the barges,
"Coastwise 9", struck an unknown sunken object. The forward buoyancy
compartment was damaged, and water gushed in through a hole "two inches
wide and twenty-two inches long"1 As a consequence, the molasses at the
cargo tanks were contaminated and rendered unfit for the use it was
intended. This prompted the consignee, Pag-asa Sales, Inc. to reject the
shipment of molasses as a total loss. Thereafter, Pag-asa Sales, Inc. filed a
formal claim with the insurer of its lost cargo, herein private respondent,
Philippine General Insurance Company (PhilGen, for short) and against the
carrier, herein petitioner, Coastwise Lighterage. Coastwise Lighterage denied
the claim and it was PhilGen which paid the consignee, Pag-asa Sales, Inc., the
amount of P700,000.00, representing the value of the damaged cargo of
molasses.
In turn, PhilGen then filed an action against Coastwise Lighterage before the
Regional Trial Court of Manila, seeking to recover the amount of P700,000.00
which it paid to Pag-asa Sales, Inc. for the latter's lost cargo.
claims to be subrogated to all the contractual rights and claims which the
consignee may have against the carrier, which is presumed to have violated
the contract of carriage.
The RTC awarded the amount prayed for by PhilGen. On Coastwise
Lighterage's appeal to the Court of Appeals, the award was affirmed.
Hence, this petition.
There are two main issues to be resolved herein. First, whether or not
petitioner Coastwise Lighterage was transformed into a private carrier, by
virtue of the contract of affreightment which it entered into with the
consignee, Pag-asa Sales, Inc. Corollarily, if it were in fact transformed into a
private carrier, did it exercise the ordinary diligence to which a private carrier
is in turn bound? Second, whether or not the insurer was subrogated into the
rights of the consignee against the carrier, upon payment by the insurer of
the value of the consignee's goods lost while on board one of the carrier's
vessels.
On the first issue, petitioner contends that the RTC and the Court of Appeals
erred in finding that it was a common carrier. It stresses the fact that it
contracted with Pag-asa Sales, Inc. to transport the shipment of molasses
from Negros Oriental to Manila and refers to this contract as a "charter
agreement". It then proceeds to cite the case of Home Insurance Company
vs. American Steamship Agencies, Inc.2 wherein this Court held: ". . . a
common carrier undertaking to carry a special cargo or chartered to a special
person only becomes a private carrier."
Petitioner's reliance on the aforementioned case is misplaced. In its entirety,
the conclusions of the court are as follows:
Accordingly, the charter party contract is one of
affreightment over the whole vessel, rather than a demise.
As such, the liability of the shipowner for acts or negligence
of its captain and crew, would remain in the absence of
stipulation.3
The distinction between the two kinds of charter parties (i.e. bareboat or
demise and contract of affreightment) is more clearly set out in the case
of Puromines, Inc. vs. Court of Appeals,4 wherein we ruled:
Under the demise or bareboat charter of the vessel, the
charterer will generally be regarded as the owner for the
voyage or service stipulated. The charterer mans the vessel
with his own people and becomes the owner pro hac vice,
subject to liability to others for damages caused by
negligence. To create a demise, the owner of a vessel must
completely and exclusively relinquish possession, command
and navigation thereof to the charterer, anything short of
such a complete transfer is a contract of affreightment (time
or voyage charter party) or not a charter party at all.
On the other hand a contract of affreightment is one in which
the owner of the vessel leases part or all of its space to haul
goods for others. It is a contract for special service to be
rendered by the owner of the vessel and under such contract
the general owner retains the possession, command and
navigation of the ship, the charterer or freighter merely
having use of the space in the vessel in return for his payment
of the charter hire. . . . .
. . . . An owner who retains possession of the ship though the
hold is the property of the charterer, remains liable as carrier
and must answer for any breach of duty as to the care,
loading and unloading of the cargo. . . .
Although a charter party may transform a common carrier into a private one,
the same however is not true in a contract of affreightment on account of the
aforementioned distinctions between the two.
Petitioner admits that the contract it entered into with the consignee was one
of affreightment.5 We agree. Pag-asa Sales, Inc. only leased three of
petitioner's vessels, in order to carry cargo from one point to another, but the
possession, command and navigation of the vessels remained with petitioner
Coastwise Lighterage.
Pursuant therefore to the ruling in the aforecited Puromines case, Coastwise
Lighterage, by the contract of affreightment, was not converted into a private
carrier, but remained a common carrier and was still liable as such.
The law and jurisprudence on common carriers both hold that the mere proof
of delivery of goods in good order to a carrier and the subsequent arrival of
the same goods at the place of destination in bad order makes for a prima
facie case against the carrier.
It follows then that the presumption of negligence that attaches to common
carriers, once the goods it transports are lost, destroyed or deteriorated,
applies to the petitioner. This presumption, which is overcome only by proof
of the exercise of extraordinary diligence, remained unrebutted in this case.
The records show that the damage to the barge which carried the cargo of
molasses was caused by its hitting an unknown sunken object as it was
heading for Pier 18. The object turned out to be a submerged derelict vessel.
Petitioner contends that this navigational hazard was the efficient cause of
the accident. Further it asserts that the fact that the Philippine Coastguard
"has not exerted any effort to prepare a chart to indicate the location of
sunken derelicts within Manila North Harbor to avoid navigational
accidents"6 effectively contributed to the happening of this mishap. Thus,
being unaware of the hidden danger that lies in its path, it became impossible
for the petitioner to avoid the same. Nothing could have prevented the event,
making it beyond the pale of even the exercise of extraordinary diligence.
However, petitioner's assertion is belied by the evidence on record where it
appeared that far from having rendered service with the greatest skill and
utmost foresight, and being free from fault, the carrier was culpably remiss in
the observance of its duties.
Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted that he
was not licensed. The Code of Commerce, which subsidiarily governs
common carriers (which are primarily governed by the provisions of the Civil
Code) provides:
Art. 609. — Captains, masters, or patrons of vessels
must be Filipinos, have legal capacity to contract in
accordance with this code, and prove the skill capacity and
 qualifications necessary to command and direct the vessel,
as established by marine and navigation laws, ordinances or
regulations, and must not be disqualified according to the
same for the discharge of the duties of the position. . . .
Clearly, petitioner Coastwise Lighterage's embarking on a voyage with an
unlicensed patron violates this rule. It cannot safely claim to have exercised
extraordinary diligence, by placing a person whose navigational skills are
questionable, at the helm of the vessel which eventually met the fateful
accident. It may also logically, follow that a person without license to
navigate, lacks not just the skill to do so, but also the utmost familiarity with
the usual and safe routes taken by seasoned and legally authorized ones. Had
the patron been licensed, he could be presumed to have both the skill and
the knowledge that would have prevented the vessel's hitting the sunken
derelict ship that lay on their way to Pier 18.
As a common carrier, petitioner is liable for breach of the contract of carriage,
having failed to overcome the presumption of negligence with the loss and
destruction of goods it transported, by proof of its exercise of extraordinary
diligence.
On the issue of subrogation, which petitioner contends as inapplicable in this
case, we once more rule against the petitioner. We have already found
petitioner liable for breach of the contract of carriage it entered into with
Pag-asa Sales, Inc. However, for the damage sustained by the loss of the cargo
which petitioner-carrier was transporting, it was not the carrier which paid
the value thereof to Pag-asa Sales, Inc. but the latter's insurer, herein private
respondent PhilGen.
Article 2207 of the Civil Code is explicit on this point:
Art. 2207. If the plaintiffs property has been insured, and he
has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated
to the rights of the insured against the wrongdoer or the
person who violated the contract. . . .
This legal provision containing the equitable principle of subrogation has
been applied in a long line of cases including Compania Maritima v. Insurance
Company of North America;7 Fireman's Fund Insurance Company v. Jamilla &
Company, Inc.,8 and Pan Malayan Insurance Corporation v. Court of
Appeals,9 wherein this Court explained:
Article 2207 of the Civil Code is founded on the well-settled
principle of subrogation. If the insured property is destroyed
or damaged through the fault or negligence of a party other
than the assured, then the insurer, upon payment to the
assured will be subrogated to the rights of the assured to
recover from the wrongdoer to the extent that the insurer
has been obligated to pay. Payment by the insurer to the
assured operated as an equitable assignment to the former
of all remedies which the latter may have against the third
party whose negligence or wrongful act caused the loss. The
right of subrogation is not dependent upon, nor does it grow
out of, any privity of contract or upon written assignment of
claim. It accrues simply upon payment of the insurance claim
by the insurer.
Undoubtedly, upon payment by respondent insurer PhilGen of the amount of
P700,000.00 to Pag-asa Sales, Inc., the consignee of the cargo of molasses
totally damaged while being transported by petitioner Coastwise Lighterage,
the former was subrogated into all the rights which Pag-asa Sales, Inc. may
have had against the carrier, herein petitioner Coastwise Lighterage.
WHEREFORE, premises considered, this petition is DENIED and the appealed
decision affirming the order of Branch 35 of the Regional Trial Court of Manila
for petitioner Coastwise Lighterage to pay respondent Philippine General
Insurance Company the "principal amount of P700,000.00 plus interest
thereon at the legal rate computed from March 29, 1989, the date the
complaint was filed until fully paid and another sum of P100,000.00 as
attorney's fees and costs"10 is likewise hereby AFFIRMED SO ORDERED.
KINDS OF CHARTER PARTIES
[G.R. No. 131166. September 30, 1999]
CALTEX (PHILIPPINES), INC. petitioner, vs. SULPICIO LINES, INC., GO SIOC SO,
ENRIQUE S. GO, EUSEBIO S. GO, CARLOS S. GO, VICTORIANO S. GO,
DOMINADOR S. GO, RICARDO S. GO, EDWARD S. GO, ARTURO S.
GO, EDGAR S. GO, EDMUND S. GO, FRANCISCO SORIANO, VECTOR
SHIPPING CORPORATION, TERESITA G. CAEZAL AND SOTERA E.
CAEZAL, respondents.
SYNOPSIS
On December 19, 1987, the MV Doa Paz, a passenger ship bound for
Manila colided with motor tanker MT Vector. MT Vector carried on board oil
products owned by Caltex by virtue of a charter contract. Numerous people
died in that accident including public school teacher Sebastian Caezal and his
11 year old daughter. In 1989, Caezals wife and mother filed a complaint for
Damages arising from Breach of Contract of Carriage against Sulpicio Lines,
Inc. Sulpicio Lines, in turn, filed a third party complaint against Vector
Shipping, Inc. and Caltex Phils. The trial court rendered decision against
Sulpicio Lines and dismissed the third-party complaint. On appeal, the Court
of Appeals modified the trial courts ruling and held Vector Shipping Co. and
Caltex Phils., Inc., equally liable. Hence, this petition.
Caltex Phils. and Vector entered into a contract of affreightment also
known as a voyage charter. In a voyage charter, the charter party provides for
the hire of the vessel only, the ship owner to supply the ships store, pay for
the wages of the master of the crew, and defray the expenses for the
maintenance of the ship. If the charter is a contract of affreightment, which
leaves the general owner in possession of the ship as owner for the voyage,
the rights and the responsibilities of ownership rest on the owner. The
Charterer is free from liability to third persons in respect of the ship.
The charterer of a vessel has no obligation before transporting all legal
requirements. The duty rests upon the common carrier simply for being
engaged in public service.
SYLLABUS
1. COMMERCIAL LAW; TRANSPORTATION; CONTRACT OF CARRIAGE;
RESPECTIVE RIGHTS AND DUTIES OF PARTIES, HOW DETERMINED.- The
respective rights and duties of a shipper and the carrier depends not on
whether the carrier is public or private, but on whether the contract of
carriage is a bill of lading or equivalent shipping documents on the one
hand, or a charter party or similar contract on the other.
2. ID.; ID.; ID.; CHARTER PARTY DIFFERENTIATED FROM CONTRACT OF
AFFREIGHTMENT.- A charter party is a contract by which an entire ship,
or some principal part thereof, is let by the owner to another person for
a specified time or use; a contract of affreightment is one by which the
owner of a ship or other vessel lets the whole or part of her to a
merchant or other person for the conveyance of goods, on a particular
voyage, in consideration of the payment of freight.
3. ID.; ID.; ID.; CONTRACT OF AFFREIGHTMENT; CATEGORIES.- A contract of
affreightment may be either time charter, wherein the leased vessel is
leased to the charterer for a fixed period of time, or voyage
charter, wherein the ship is leased for a single voyage. In both cases, the
charter-party provides for the hire of the vessel only, either for a
determinate period of time or for a single or consecutive voyage, the
Ship owner to supply the ships store, pay for the wages of the master of
the crew, and defray the expenses for the maintenance of the ship.
4. ID.; ID.; ID.; ID.; WHERE CHARTER IS ONE OF AFFREIGHTMENT,
CHARTERER FREE FROM LIABILITY TO THIRD PERSONS.- If the charter is
a contract of affreightment, which leaves the general owner in
possession of the ship as owner for the voyage, the rights and the
responsibilities of ownership rest on the owner. The charterer is free
from liability to third persons in respect of the ship.
5. ID.; ID.; COMMON CARRIER; REMAINS AS SUCH NOTWITHSTANDING
CHARTER OF WHOLE OR PORTION OF VESSEL.- In this case, the charter
party agreement did not convert the common carrier into a private
carrier. The parties entered into a voyager charter, which retains the
character of the vessel as a common carrier. In Planters Products, Inc. vs.
Court of Appeals, we said: It is therefore imperative that a public carrier
shall remain as such, notwithstanding the charter of the whole or portion
of a vessel by one or more persons, provided the charter is limited to the
ship only, as in the case of a time-charter or voyage charter. It is only
when the charter includes both the vessel and its crew, as in a bareboat
or demise that a common carrier becomes private, at least insofar as the
particular voyage covering the charter-party is concerned. Indubitably, a
ship-owner in a time or voyage charter retains possession and control of
the ship, although her holds may, for the moment, be the property of
the charterer. Later, we ruled in Coastwise Lighterage Corporation vs.
Court of Appeals. Although a charter party may transform a common
 carrier into a private one, the same however is not true in a contract of
affreightment xxx
6. ID.; ID.; ID.; SEAWORTHINESS, IMPLIEDLY WARRANTED.- A common
carrier is a person or corporation whose regular business is to carry
passenger or property for all persons who may choose to employ and to
remunerate him. MT Vector fits the definition of a common carrier under
Article 1732 of the Civil Code. Thus, the carriers are deemed to warrant
impliedly the seaworthiness of the ship. For a vessel to be seaworthy, it
must be adequately equipped for the voyage and manned with a
sufficient number of competent officers and crew. The failure of a
common carrier to maintain in seaworthy condition the vessel involved
in its contract of carriage is a clear breach of its duty prescribed in Article
1755 of the Civil Code. The provisions owed their conception to the
nature of the business of common carriers. This business is impressed
with a special public duty. The public must of necessity rely on the care
and skill of common carriers in the vigilance over the goods and safety
of the passengers, especially because with the modern development of
science and invention, transportation has become more rapid, more
complicated and somehow more hazardous. For these reasons, a
passenger or a shipper of goods is under no obligation to conduct an
inspection of the ship and its crew, the carrier being obliged by law to
impliedly warrant its seaworthiness.
7. ID.; ID.; ID.; NEGLIGENCE, CONSTRUED.- In Southeastern College, Inc. vs.
Court of Appeals, we said that negligence, as commonly understood, is
conduct which naturally or reasonably creates undue risk or harm to
others. It may be the failure to observe that degree of care, precaution,
and vigilance, which the circumstances justly demand, or the omission
to do something which ordinarily regulate the conduct of human affairs,
would do.
8. ID.; ID.; ID.; ID.; CHARTERER WITH NO OBLIGATION TO ENSURE VESSEL
COMPLIED WITH ALL LEGAL REQUIREMENTS.- The charterer of a vessel
has no obligation before transporting its cargo to ensure that the vessel
it chartered complied with all legal requirements. The duty rests upon
the common carrier simply for being engaged in public service. The Civil
Code demands diligence which is required by the nature of the
obligation and that which corresponds with the circumstances of the
persons, the time and the place. Hence, considering the nature of the
obligation between Caltex and MT Vector, the liability as found by the
Court of Appeals is without basis.
9. ID.; ID.; ID.; ID.; ID.; CASE AT BAR.- The relationship between the parties
in this case is governed by special laws. Because of the implied warranty
of seaworthiness, shippers of goods, when transacting with common
carriers, are not expected to inquire into the vessels seaworthiness,
genuineness of its licenses and compliance with all maritime laws. To
demand more from shippers and hold them liable in case of failure
exhibits nothing but the futility of our maritime laws insofar as the
protection of the public in general is concerned. By the same token, we
cannot expect passengers to inquire every time they board a common
carrier, whether the carrier possesses the necessary papers or that all
the carriers employees are qualified. Such a practice would be an
absurdity in a business where time is always of the essence. Considering
the nature of transportation business, passengers and shippers alike
customarily presume that common carriers possess all the legal
requisites in its operation. Thus, the nature of the obligation of Caltex
demands ordinary diligence like any other shipper in shipping his cargoes
DECISION
PARDO, J.:
Is the charterer of a sea vessel liable for damages resulting from a
collision between the chartered vessel and a passenger ship?
When MT Vector left the port of Limay, Bataan, on December 19, 1987
carrying petroleum products of Caltex (Philippines), Inc. (hereinafter Caltex)
no one could have guessed that it would collide with MV Doa Paz, killing
almost all the passengers and crew members of both ships, and thus resulting
in one of the countrys worst maritime disasters.
The petition before us seeks to reverse the Court of Appeals
decision[1]holding petitioner jointly liable with the operator of MT Vector for
damages when the latter collided with Sulpicio Lines, Inc.s passenger ship MV
Doa Paz.
The facts are as follows:
On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at
about 8:00 p.m., enroute to Masbate, loaded with 8,800 barrels of petroleum
products shipped by petitioner Caltex.[2] MT Vector is a tramping motor
tanker owned and operated by Vector Shipping Corporation, engaged in the
business of transporting fuel products such as gasoline, kerosene, diesel and
crude oil. During that particular voyage, the MT Vector carried on board
gasoline and other oil products owned by Caltex by virtue of a charter
contract between them.[3]
On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doa
Paz left the port of Tacloban headed for Manila with a complement of 59 crew
members including the master and his officers, and passengers totaling 1,493
as indicated in the Coast Guard Clearance.[4] The MV Doa Paz is a passenger
and cargo vessel owned and operated by Sulpicio Lines, Inc. plying the route
of Manila/ Tacloban/ Catbalogan/ Manila/ Catbalogan/ Tacloban/ Manila,
making trips twice a week.
At about 10:30 p.m. of December 20, 1987, the two vessels collided in
the open sea within the vicinity of Dumali Point between Marinduque and
Oriental Mindoro. All the crewmembers of MV Doa Paz died, while the two
survivors from MT Vector claimed that they were sleeping at the time of the
incident.
The MV Doa Paz carried an estimated 4,000 passengers; many indeed,
were not in the passenger manifest. Only 24 survived the tragedy after having
been rescued from the burning waters by vessels that responded to distress
calls.[5] Among those who perished were public school teacher Sebastian
Caezal (47 years old) and his daughter Corazon Caezal (11 years old), both
unmanifested passengers but proved to be on board the vessel.
On March 22, 1988, the board of marine inquiry in BMI Case No. 653-87
after investigation found that the MT Vector, its registered operator Francisco
Soriano, and its owner and actual operator Vector Shipping Corporation,
were at fault and responsible for its collision with MV Doa Paz.[6]
On February 13, 1989, Teresita Caezal and Sotera E. Caezal, Sebastian
Caezals wife and mother respectively, filed with the Regional Trial Court,
Branch 8, Manila, a complaint for Damages Arising from Breach of Contract
of Carriage against Sulpicio Lines, Inc. (hereafter Sulpicio). Sulpicio, in turn,
filed a third party complaint against Francisco Soriano, Vector Shipping
Corporation and Caltex (Philippines), Inc. Sulpicio alleged that Caltex
chartered MT Vector with gross and evident bad faith knowing fully well that
MT Vector was improperly manned, ill-equipped, unseaworthy and a hazard
to safe navigation; as a result, it rammed against MV Doa Paz in the open sea
setting MT Vectors highly flammable cargo ablaze.
On September 15, 1992, the trial court rendered decision dismissing the
third party complaint against petitioner. The dispositive portion reads:
WHEREFORE, judgement is hereby rendered in favor of plaintiffs and against
defendant-3rd party plaintiff Sulpicio Lines, Inc., to wit:
1. For the death of Sebastian E. Caezal and his 11-year old daughter Corazon
G. Caezal, including loss of future earnings of said Sebastian, moral and
exemplary damages, attorneys fees, in the total amount of P 1,241,287.44
and finally;
2. The statutory costs of the proceedings.
Likewise, the 3rd party complaint is hereby DISMISSED for want of
substantiation and with costs against the 3rd party plaintiff.
IT IS SO ORDERED.
DONE IN MANILA, this 15th day of September 1992.
ARSENIO M. GONONG Judge[7]
On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc., on
April 15, 1997, the Court of Appeal modified the trial courts ruling and
included petitioner Caltex as one of the those liable for damages.Thus:
WHEREFORE, in view of all the foregoing, the judgment rendered by the
Regional Trial Court is hereby MODIFIED as follows:
WHEREFORE, defendant Sulpicio Lines, Inc., is ordered to pay the heirs of
Sebastian E. Caezal and Corazon Caezal:
1. Compensatory damages for the death of Sebastian E.Caezal and Corazon
Caezal the total amount of ONE HUNDRED THOUSAND PESOS (P100,000);
2. Compensatory damages representing the unearned income of Sebastian E.
Caezal, in the total amount of THREE HUNDRED SIX THOUSAND FOUR
HUNDRED EIGHTY (P306,480.00) PESOS;
3. Moral damages in the amount of THREE HUNDRED THOUSAND PESOS (P
300,000.00);
4. Attorneys fees in the concept of actual damages in the amount of FIFTY
THOUSAND PESOS (P 50,000.00);
5. Costs of the suit.
Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held
equally liable under the third party complaint to reimburse/indemnify
defendant Sulpicio Lines, Inc. of the above-mentioned damages, attorneys
fees and costs which the latter is adjudged to pay plaintiffs, the same to be
shared half by Vector Shipping Co. (being the vessel at fault for the collision)
and the other half by Caltex (Phils.), Inc. (being the charterer that negligently
caused the shipping of combustible cargo aboard an unseaworthy vessel).
SO ORDERED.
JORGE S. IMPERIAL
Associate Justice
WE CONCUR:
RAMON U. MABUTAS. JR. PORTIA ALIO HERMACHUELOS
Associate Justice Associate Justice[8]
Hence, this petition.
We find the petition meritorious.
First: The charterer has no liability for damages under Philippine
Maritime laws.
The respective rights and duties of a shipper and the carrier depends not
on whether the carrier is public or private, but on whether the contract of
carriage is a bill of lading or equivalent shipping documents on the one hand,
or a charter party or similar contract on the other.[9]
Petitioner and Vector entered into a contract of affreightment, also
known as a voyage charter.[10]
A charter party is a contract by which an entire ship, or some principal
part thereof, is let by the owner to another person for a specified time or use;
a contract of affreightment is one by which the owner of a ship or other vessel
lets the whole or part of her to a merchant or other person for the
conveyance of goods, on a particular voyage, in consideration of the payment
of freight.[11]
A contract of affreightment may be either time charter, wherein the
leased vessel is leased to the charterer for a fixed period of time, or voyage
charter, wherein the ship is leased for a single voyage. In both cases, the
charter-party provides for the hire of the vessel only, either for a determinate
period of time or for a single or consecutive voyage, the ship owner to supply
the ships store, pay for the wages of the master of the crew, and defray the
expenses for the maintenance of the ship.[12]
Under a demise or bareboat charter on the other hand, the charterer
mans the vessel with his own people and becomes, in effect, the owner for
the voyage or service stipulated, subject to liability for damages caused by
negligence.
If the charter is a contract of affreightment, which leaves the general
owner in possession of the ship as owner for the voyage, the rights and the
responsibilities of ownership rest on the owner. The charterer is free from
liability to third persons in respect of the ship.[13]
Second : MT Vector is a common carrier
Charter parties fall into three main categories: (1) Demise or bareboat,
(2) time charter, (3) voyage charter. Does a charter party agreement turn the
common carrier into a private one? We need to answer this question in order
to shed light on the responsibilities of the parties.
In this case, the charter party agreement did not convert the common
carrier into a private carrier. The parties entered into a voyage charter, which
retains the character of the vessel as a common carrier.
In Planters Products, Inc. vs. Court of Appeals,[14] we said:
It is therefore imperative that a public carrier shall remain as such,
notwithstanding the charter of the whole or portion of a vessel by one or
more persons, provided the charter is limited to the ship only, as in the case
of a time-charter or voyage charter. It is only when the charter includes both
the vessel and its crew, as in a bareboat or demise that a common carrier
becomes private, at least insofar as the particular voyage covering the
charter-party is concerned. Indubitably, a ship-owner in a time or voyage
charter retains possession and control of the ship, although her holds may,
for the moment, be the property of the charterer.
Later, we ruled in Coastwise Lighterage Corporation vs. Court of Appeal:
Although a charter party may transform a common carrier into a private one,
the same however is not true in a contract of affreightment xxx
A common carrier is a person or corporation whose regular business is
to carry passengers or property for all persons who may choose to employ
and to remunerate him.[16] MT Vector fits the definition of a common carrier
under Article 1732 of the Civil Code. In Guzman vs. Court of Appeals,[17] we
ruled:
The Civil Code defines common carriers in the following terms:
Article 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers
for passengers or goods or both, by land, water, or air for compensation,
offering their services to the public.
The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such
carrying only as an ancillary activity (in local idiom, as a sideline). Article 1732
also carefully avoids making any distinction between a person or enterprise
offering transportation service on a regular or scheduled basis and one
offering such services on a an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its
services to the general public, i.e., the general community or population, and
one who offers services or solicits business only from a narrow segment of
the general population. We think that Article 1733 deliberately refrained
from making such distinctions.
It appears to the Court that private respondent is properly characterized as a
common carrier even though he merely back-hauled goods for other
merchants from Manila to Pangasinan, although such backhauling was done
on a periodic, occasional rather than regular or scheduled manner, and even
though respondents principal occupation was not the carriage of goods for
others. There is no dispute that private respondent charged his customers a
fee for hauling their goods; that the fee frequently fell below commercial
freight rates is not relevant here.
Under the Carriage of Goods by Sea Act :
Sec. 3. (1) The carrier shall be bound before and at the beginning of the
voyage to exercise due diligence to -
(a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship;
xxx xxx xxx
Thus, the carriers are deemed to warrant impliedly the seaworthiness of
the ship. For a vessel to be seaworthy, it must be adequately equipped for
the voyage and manned with a sufficient number of competent officers and
crew. The failure of a common carrier to maintain in seaworthy condition the
vessel involved in its contract of carriage is a clear breach of its duty
prescribed in Article 1755 of the Civil Code.[18]
The provisions owed their conception to the nature of the business of
common carriers. This business is impressed with a special public duty. The
public must of necessity rely on the care and skill of common carriers in the
vigilance over the goods and safety of the passengers, especially because with
the modern development of science and invention, transportation has
become more rapid, more complicated and somehow more hazardous.[19] For
these reasons, a passenger or a shipper of goods is under no obligation to
conduct an inspection of the ship and its crew, the carrier being obliged by
law to impliedly warrant its seaworthiness.
This aside, we now rule on whether Caltex is liable for damages under
the Civil Code.
Third: Is Caltex liable for damages under the Civil Code?
We rule that it is not.
Sulpicio argues that Caltex negligently shipped its highly combustible
fuel cargo aboard an unseaworthy vessel such as the MT Vector when Caltex:
1. Did not take steps to have M/T Vectors certificate of inspection
and coastwise license renewed;
2. Proceeded to ship its cargo despite defects found by Mr. Carlos
Tan of Bataan Refinery Corporation;
3. Witnessed M/T Vector submitting fake documents and
certificates to the Philippine Coast Guard.
Sulpicio further argues that Caltex chose MT Vector to transport its cargo
despite these deficiencies:
1. The master of M/T Vector did not posses the required Chief Mate
license to command and navigate the vessel;
2. The second mate, Ronaldo Tarife, had the license of a Minor
Patron, authorized to navigate only in bays and rivers when the
subject collision occurred in the open sea;
3. The Chief Engineer, Filoteo Aguas, had no license to operate the
engine of the vessel;
4. The vessel did not have a Third Mate, a radio operator and a
lookout; and
5. The vessel had a defective main engine.[20]
As basis for the liability of Caltex, the Court of Appeals relied on Articles
20 and 2176 of the Civil Code, which provide:
Article 20. - Every person who contrary to law, willfully or negligently causes
damage to another, shall indemnify the latter for the same.
Article 2176. - Whoever by act or omission causes damage to another, there
being fault or negligence, is obliged to pay for the damage done. Such fault
or negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict and is governed by the provisions of this
Chapter.
And what is negligence?
The Civil Code provides:
Article 1173. The fault or negligence of the obligor consists in the omission of
that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the
place. When negligence shows bad faith, the provisions of Article 1171 and
2201 paragraph 2, shall apply.
If the law does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be
required.
In Southeastern College, Inc. vs. Court of Appeals,[21] we said that
negligence, as commonly understood, is conduct which naturally or
reasonably creates undue risk or harm to others. It may be the failure to
observe that degree of care, precaution, and vigilance, which the
circumstances justly demand, or the omission to do something which
ordinarily regulate the conduct of human affairs, would do.
The charterer of a vessel has no obligation before transporting its cargo
to ensure that the vessel it chartered complied with all legal
requirements. The duty rests upon the common carrier simply for being
engaged in public service.[22] The Civil Code demands diligence which is
required by the nature of the obligation and that which corresponds with the
circumstances of the persons, the time and the place. Hence, considering the
nature of the obligation between Caltex and MT Vector, the liability as found
by the Court of Appeals is without basis.
The relationship between the parties in this case is governed by special
laws. Because of the implied warranty of seaworthiness,[23] shippers of goods,
when transacting with common carriers, are not expected to inquire into the
vessels seaworthiness, genuineness of its licenses and compliance with all
maritime laws. To demand more from shippers and hold them liable in case
of failure exhibits nothing but the futility of our maritime laws insofar as the
protection of the public in general is concerned. By the same token, we
cannot expect passengers to inquire every time they board a common carrier,
whether the carrier possesses the necessary papers or that all the carriers
employees are qualified. Such a practice would be an absurdity in a business
where time is always of the essence. Considering the nature of transportation
business, passengers and shippers alike customarily presume that common
carriers possess all the legal requisites in its operation.
Thus, the nature of the obligation of Caltex demands ordinary diligence
like any other shipper in shipping his cargoes.
A cursory reading of the records convinces us that Caltex had reasons to
believe that MT Vector could legally transport cargo that time of the year.
Atty. Poblador: Mr. Witness, I direct your attention to this portion here
containing the entries here under VESSELS DOCUMENTS
1. Certificate of Inspection No. 1290-85, issued December 21, 1986,
and Expires December 7, 1987, Mr. Witness, what steps did you
take regarding the impending expiry of the C.I. or the Certificate
of Inspection No. 1290-85 during the hiring of MT Vector?
Apolinar Ng: At the time when I extended the Contract, I did nothing
because the tanker has a valid C.I. which will expire on December 7,
1987 but on the last week of November, I called the attention of Mr.
Abalos to ensure that the C.I. be renewed and Mr. Abalos, in turn,
assured me they will renew the same.
Q: What happened after that?
A: On the first week of December, I again made a follow-up from Mr.
Abalos, and said they were going to send me a copy as soon as
possible, sir.[24]
xxx xxx xxx
Q: What did you do with the C.I.?
A: We did not insist on getting a copy of the C.I. from Mr. Abalos on the
first place, because of our long business relation, we trust Mr. Abalos
and the fact that the vessel was able to sail indicates that the
documents are in order. xxx[25]
On cross examination -
Atty. Sarenas: This being the case, and this being an admission by you, this
Certificate of Inspection has expired on December 7. Did it occur to
you not to let the vessel sail on that day because of the very
approaching date of expiration?
 Apolinar Ng: No sir, because as I said before, the operation Manager WHEREFORE, the Court hereby GRANTS the petition and SETS ASIDE the
assured us that they were able to secure a renewal of the Certificate decision of the Court of Appeals in CA-G. R. CV No. 39626, promulgated on
of Inspection and that they will in time submit us a copy.[26] April 15, 1997, insofar as it held Caltex liable under the third party complaint
Finally, on Mr. Ngs redirect examination: to reimburse/indemnify defendant Sulpicio Lines, Inc. the damages the latter
Atty. Poblador: Mr. Witness, were you aware of the pending expiry of the is adjudged to pay plaintiffs-appellees. The Court AFFIRMS the decision of the
Certificate of Inspection in the coastwise license on December 7, Court of Appeals insofar as it orders Sulpicio Lines, Inc. to pay the heirs of
1987. What was your assurance for the record that this document Sebastian E. Caezal and Corazon Caezal damages as set forth therein. Third-
was renewed by the MT Vector? party defendant-appellee Vector Shipping Corporation and Francisco Soriano
Atty. Sarenas: xxx are held liable to reimburse/indemnify defendant Sulpicio Lines, Inc.
Atty. Poblador: The certificate of Inspection? whatever damages, attorneys fees and costs the latter is adjudged to pay
A: As I said, firstly, we trusted Mr. Abalos as he is a long time business plaintiffs-appellees in the case.
partner; secondly, those three years, they were allowed to sail by the
Coast Guard. That are some that make me believe that they in fact No costs in this instance.
were able to secure the necessary renewal.
Q: If the Coast Guard clears a vessel to sail, what would that mean? SO ORDERED.
Atty. Sarenas: Objection.
Court: He already answered that in the cross examination to the effect
that if it was allowed, referring to MV Vector, to sail, where it is
loaded and that it was scheduled for a destination by the Coast
Guard, it means that it has Certificate of Inspection extended as
assured to this witness by Restituto Abalos. That in no case MV
Vector will be allowed to sail if the Certificate of Inspection is, indeed,
not to be extended. That was his repeated explanation to the cross-
examination. So, there is no need to clarify the same in the re-direct
examination.[27]

Caltex and Vector Shipping Corporation had been doing business since
1985, or for about two years before the tragic incident occurred in 1987. Past
services rendered showed no reason for Caltex to observe a higher degree of
diligence.

Clearly, as a mere voyage charterer, Caltex had the right to presume that
the ship was seaworthy as even the Philippine Coast Guard itself was
convinced of its seaworthiness. All things considered, we find no legal basis
to hold petitioner liable for damages.

As Vector Shipping Corporation did not appeal from the Court of Appeals
decision, we limit our ruling to the liability of Caltex alone. However, we
maintain the Court of Appeals ruling insofar as Vector is concerned .
PROBATIVE VALUE OF BILL OF LADING
G.R. No. 95529 August 22, 1991
MAGELLAN MANUFACTURING MARKETING CORPORATION,* petitioner,
vs.
COURT OF APPEALS, ORIENT OVERSEAS CONTAINER LINES and F.E.
ZUELLIG, INC. respondents.
REGALADO, J.:
Petitioner, via this petition for review on certiorari, seeks the reversal of the
judgment of respondent Court of Appeals in CA-G.R. CV No. 18781,1 affirming
in part the decision of the trial court,2 the dispositive portion of which reads:
Premises considered, the decision appealed from is affirmed insofar
as it dismisses the complaint. On the counter-claim, however,
appellant is ordered to pay appellees the amount of P52,102.45 with
legal interest from date of extra-judicial demand. The award of
attorney's fees is deleted.3
The facts as found by respondent appellate court are as follows:
On May 20, 1980, plaintiff-appellant Magellan Manufacturers
Marketing Corp. (MMMC) entered into a contract with Choju Co. of
Yokohama, Japan to export 136,000 anahaw fans for and in
consideration of $23,220.00. As payment thereof, a letter of credit
was issued to plaintiff MMMC by the buyer. Through its president,
James Cu, MMMC then contracted F.E. Zuellig, a shipping agent,
through its solicitor, one Mr. King, to ship the anahaw fans through
the other appellee, Orient Overseas Container Lines, Inc., (OOCL)
specifying that he needed an on-board bill of lading and that
transhipment is not allowed under the letter of credit (Exh. B-1). On
June 30, 1980, appellant MMMC paid F.E. Zuellig the freight charges
and secured a copy of the bill of lading which was presented to Allied
Bank. The bank then credited the amount of US$23,220.00 covered
by the letter of credit to appellant's account. However, when
appellant's president James Cu, went back to the bank later, he was
informed that the payment was refused by the buyer allegedly
because there was no on-board bill of lading, and there was a
transhipment of goods. As a result of the refusal of the buyer to
accept, upon appellant's request, the anahaw fans were shipped back
to Manila by appellees, for which the latter demanded from appellant
payment of P246,043.43. Appellant abandoned the whole cargo and
asked appellees for damages.
In their Partial Stipulation of Facts, the parties admitted that a
shipment of 1,047 cartons of 136,000 pieces of Anahaw Fans
contained in 1 x 40 and 1 x 20 containers was loaded at Manila on
board the MV 'Pacific Despatcher' freight prepaid, and duly covered
by Bill of Lading No. MNYK201T dated June 27, 1980 issued by OOCL;
that the shipment was delivered at the port of discharge on July 19,
1980, but was subsequently returned to Manila after the consignee
refused to accept/pay the same.4
Elaborating on the above findings of fact of respondent court and without
being disputed by herein private respondents, petitioner additionally avers
that:
When petitioner informed private respondents about what
happened, the latter issued a certificate stating that its bill of lading
it issued is an on board bill of lading and that there was no actual
transhipment of the fans. According to private respondents when the
goods are transferred from one vessel to another which both belong
to the same owner which was what happened to the Anahaw fans,
then there is (no) transhipment. Petitioner sent this certification to
Choju Co., Ltd., but the said company still refused to accept the goods
which arrived in Japan on July 19, 1980.
Private respondents billed petitioner in the amount of P16,342.21 for
such shipment and P34,928.71 for demurrage in Japan from July 26
up to August 31, 1980 or a total of P51,271.02. In a letter dated March
20, 1981, private respondents gave petitioner the option of paying
the sum of P51,271.02 or to abandon the Anahaw fans to enable
private respondents to sell them at public auction to cover the cost
of shipment and demurrages. Petitioner opted to abandon the goods.
However, in a letter dated June 22, 1981 private respondents
demanded for payment of P298,150.93 from petitioner which
represents the freight charges from Japan to Manila, demurrage
incurred in Japan and Manila from October 22, 1980 up to May 20,
1981; and charges for stripping the container van of the Anahaw fans
on May 20, 1981.
On July 20, 1981 petitioner filed the complaint in this case praying
that private respondents be ordered to pay whatever petitioner was
not able to earn from Choju Co., Ltd., amounting to P174,150.00 and
other damages like attorney's fees since private respondents are to
 blame for the refusal of Choju Co., Ltd. to accept the Anahaw fans. In
answer thereto the private respondents alleged that the bill of lading
clearly shows that there will be a transhipment and that petitioner
was well aware that MV (Pacific) Despatcher was only up to
Hongkong where the subject cargo will be transferred to another
vessel for Japan. Private respondents also filed a counterclaim
praying that petitioner be ordered to pay freight charges from Japan
to Manila and the demurrages in Japan and Manila amounting to
P298,150.93.
The lower court decided the case in favor of private respondents. It
dismissed the complaint on the ground that petitioner had given its
consent to the contents of the bill of lading where it is clearly
indicated that there will be transhipment. The lower court also said
that petitioner is liable to pay to private respondent the freight
charges from Japan to Manila and demurrages since it was the former
which ordered the reshipment of the cargo from Japan to Manila.
On appeal to the respondent court, the finding of the lower (court)
that petitioner agreed to a transhipment of the goods was affirmed
but the finding that petitioner is liable for P298,150.93 was modified.
It was reduced to P52,102.45 which represents the freight charges
and demurrages incurred in Japan but not for the demurrages
incurred in Marta. According to the respondent (court) the petitioner
can not be held liable for the demurrages incurred in Manila because
Private respondents did not timely inform petitioner that the goods
were already in Manila in addition to the fact that private respondent
had given petitioner the option of abandoning the goods in exchange
for the demurrages.5
Petitioner, being dissatisfied with the decision of respondent court and the
motion for reconsideration thereof having been denied, invokes the Court's
review powers for the resolution of the issues as to whether or not
respondent court erred (1) in affirming the decision of the trial court which
dismissed petitioner's complaint; and (2) in holding petitioner liable to private
respondents in the amount of P52,102.45.6
I. Petitioner obstinately faults private respondents for the refusal of its buyer,
Choju Co., Ltd., to take delivery of the exported anahaw fans resulting in a
loss of P174,150.00 representing the purchase price of the said export items
because of violation of the terms and conditions of the letter of credit issued
in favor of the former which specified the requirement for an on board bill of
lading and the prohibition against transhipment of goods, inasmuch as the
bill of lading issued by the latter bore the notation "received for shipment"
and contained an entry indicating transhipment in Hongkong.
We find no fault on the part of private respondents. On the matter of
transhipment, petitioner maintains that "... while the goods were transferred
in Hongkong from MV Pacific Despatcher, the feeder vessel, to MV Oriental
Researcher, a mother vessel, the same cannot be considered transhipment
because both vessels belong to the same shipping company, the private
respondent Orient Overseas Container Lines, Inc."7 Petitioner emphatically
goes on to say: "To be sure, there was no actual transhipment of the Anahaw
fans. The private respondents have executed a certification to the effect that
while the Anahaw fans were transferred from one vessel to another in Hong
Kong, since the two vessels belong to one and the same company then there
was no transhipment.8
Transhipment, in maritime law, is defined as "the act of taking cargo out of
one ship and loading it in another,"9 or "the transfer of goods from the vessel
stipulated in the contract of affreightment to another vessel before the place
of destination named in the contract has been reached,"10 or "the transfer for
further transportation from one ship or conveyance to another."11 Clearly,
either in its ordinary or its strictly legal acceptation, there is transhipment
whether or not the same person, firm or entity owns the vessels. In other
words, the fact of transhipment is not dependent upon the ownership of the
transporting ships or conveyances or in the change of carriers, as the
petitioner seems to suggest, but rather on the fact of actual physical transfer
of cargo from one vessel to another.
That there was transhipment within this contemplation is the inescapable
conclusion, as there unmistakably appears on the face of the bill of lading the
entry "Hong Kong" in the blank space labeled "Transhipment," which can only
mean that transhipment actually took place.12 This fact is further bolstered
by the certification13 issued by private respondent F.E. Zuellig, Inc. dated July
19, 1980, although it carefully used the term "transfer" instead of
transhipment. Nonetheless, no amount of semantic juggling can mask the
fact that transhipment in truth occurred in this case.
Petitioner insists that "(c)onsidering that there was no actual transhipment
of the Anahaw fans, then there is no occasion under which the petitioner can
agree to the transhipment of the Anahaw fans because there is nothing like
that to agree to" and "(i)f there is no actual transhipment but there appears
to be a transhipment in the bill of lading, then there can be no possible reason
for it but a mistake on the part of the private respondents.14
Petitioner, in effect, is saying that since there was a mistake in documentation
on the part of private respondents, such a mistake militates against the
conclusiveness of the bill of lading insofar as it reflects the terms of the
contract between the parties, as an exception to the parol evidence rule, and
would therefore permit it to explain or present evidence to vary or contradict
the terms of the written agreement, that is, the bill of lading involved herein.
It is a long standing jurisprudential rule that a bill of lading operates both as
a receipt and as a contract. It is a receipt for the goods shipped and a contract
to transport and deliver the same as therein stipulated. As a contract, it
names the parties, which includes the consignee, fixes the route, destination,
and freight rates or charges, and stipulates the rights and obligations
assumed by the parties.15 Being a contract, it is the law between the parties
who are bound by its terms and conditions provided that these are not
contrary to law, morals, good customs, public order and public policy.16 A bill
of lading usually becomes effective upon its delivery to and acceptance by the
shipper. It is presumed that the stipulations of the bill were, in the absence
of fraud, concealment or improper conduct, known to the shipper, and he is
generally bound by his acceptance whether he reads the bill or not.17
The holding in most jurisdictions has been that a shipper who receives a bill
of lading without objection after an opportunity to inspect it, and permits the
carrier to act on it by proceeding with the shipment is presumed to have
accepted it as correctly stating the contract and to have assented to its terms.
In other words, the acceptance of the bill without dissent raises the
presumption that all the terms therein were brought to the knowledge of the
shipper and agreed to by him and, in the absence of fraud or mistake, he is
estopped from thereafter denying that he assented to such terms. This rule
applies with particular force where a shipper accepts a bill of lading with full
knowledge of its contents and acceptance under such circumstances makes
it a binding contract.18
In the light of the series of events that transpired in the case at bar, there can
be no logical conclusion other than that the petitioner had full knowledge of,
and actually consented to, the terms and conditions of the bill of lading
thereby making the same conclusive as to it, and it cannot now be heard to
deny having assented thereto. As borne out by the records, James Cu himself,
in his capacity as president of MMMC, personally received and signed the bill
of lading. On practical considerations, there is no better way to signify
consent than by voluntarry signing the document which embodies the
agreement. As found by the Court of Appeals —
Contrary to appellant's allegation that it did not agree to the
transhipment, it could be gleaned from the record that the appellant
actually consented to the transhipment when it received the bill of
lading personally at appellee's (F.E. Zuellig's) office. There clearly
appears on the face of the bill of lading under column "PORT OF
TRANSHIPMENT" an entry "HONGKONG' (Exhibits'G-l'). Despite said
entries he still delivered his voucher (Exh. F) and the corresponding
check in payment of the freight (Exhibit D), implying that he
consented to the transhipment (Decision, p. 6, Rollo).19
Furthermore and particularly on the matter of whether or not there was
transhipment, James Cu, in his testimony on crossexamination, categorically
stated that he knew for a fact that the shipment was to be unloaded in Hong
Kong from the MV Pacific Despatcher to be transferred to a mother vessel,
the MV Oriental Researcher in this wise:
Q Mr. Cu, are you not aware of the fact that your shipment is to be
transferred or transhipped at the port of Hongkong?
A I know. It's not transport, they relay, not trans... yes, that is why we
have an agreement if they should not put a transhipment in
Hongkong, that's why they even stated in the certification.
xxx xxx xxx
Q In layman's language, would you agree with me that transhipment
is the transfer of a cargo from one vessel to the other?
A As a layman, yes.
Q So, you know for a fact that your shipment is going to be unloaded
in Hongkong from M. V. Dispatcher (sic) and then transfer (sic) to
another vessel which was the Oriental Dispatcher, (sic) you know that
for a fact?
A Yes, sir. (Emphasis supplied.)20
Under the parol evidence rule,21 the terms of a contract are rendered
conclusive upon the parties, and evidence aliunde is not admissible to vary or
contradict a complete and enforceable agreement embodied in a document,
subject to well defined exceptions which do not obtain in this case. The parol
evidence rule is based on the consideration that when the parties have
reduced their agreement on a particular matter into writing, all their previous
and contemporaneous agreements on the matter are merged therein.
Accordingly, evidence of a prior or contemporaneous verbal agreement is
generally not admissible to vary, contradict or defeat the operation of a valid
instrument.22 The mistake contemplated as an exception to the parol
evidence rule is one which is a mistake of fact mutual to the
parties.23 Furthermore, the rules on evidence, as amended, require that in
order that parol evidence may be admitted, said mistake must be put in issue
by the pleadings, such that if not raised inceptively in the complaint or in the
answer, as the case may be, a party can not later on be permitted to introduce
parol evidence thereon.24 Needless to say, the mistake adverted to by herein
petitioner, and by its own admission, was supposedly committed by private
respondents only and was raised by the former rather belatedly only in this
instant petition. Clearly then, and for failure to comply even only with the
procedural requirements thereon, we cannot admit evidence to prove or
explain the alleged mistake in documentation imputed to private
respondents by petitioner.
Petitioner further argues that assuming that there was transhipment, it
cannot be deemed to have agreed thereto even if it signed the bill of lading
containing such entry because it had made known to private respondents
from the start that transhipment was prohibited under the letter of credit and
that, therefore, it had no intention to allow transhipment of the subject
cargo. In support of its stand, petitioner relies on the second paragraph of
Article 1370 of the Civil Code which states that "(i)f the words appear to be
contrary to the evident intention of the parties, the latter shall prevail over
the former," as wen as the supposed ruling in Caltex Phil., Inc. vs.
Intermediate Appellate Court, et al.25 that "where the literal interpretation of
a contract is contrary to the evident intention of the parties, the latter shall
prevail."
As between such stilted thesis of petitioner and the contents of the bill of
lading evidencing the intention of the parties, it is irremissible that the latter
must prevail. Petitioner conveniently overlooks the first paragraph of the very
article that he cites which provides that "(i)f the terms of the contract are
clear and leave no doubt upon the intention of the contracting parties, the
literal meaning of the stipulations shall control." In addition, Article 1371 of
the same Code provides that "(i)n order to judge the intention of the
contracting parties, their contemporaneous and subsequent acts shall be
principally considered."
The terms of the contract as embodied in the bill of lading are clear and thus
obviates the need for any interpretation. The intention of the parties which
is the carriage of the cargo under the terms specified thereunder and the
wordings of the bill of lading do not contradict each other. The terms of the
contract being conclusive upon the parties and judging from the
contemporaneous and subsequent actuations of petitioner, to wit, personally
receiving and signing the bill of lading and paying the freight charges, there is
no doubt that petitioner must necessarily be charged with full knowledge and
unqualified acceptance of the terms of the bill of lading and that it intended
to be bound thereby.
Moreover, it is a well-known commercial usage that transhipment of freight
without legal excuse, however competent and safe the vessel into which the
transfer is made, is a violation of the contract and an infringement of the right
of the shipper, and subjects the carrier to liability if the freight is lost even by
a cause otherwise excepted.26 It is highly improbable to suppose that private
respondents, having been engaged in the shipping business for so long, would
be unaware of such a custom of the trade as to have undertaken such
transhipment without petitioner's consent and unnecessarily expose
themselves to a possible liability. Verily, they could only have undertaken
transhipment with the shipper's permission, as evidenced by the signature of
James Cu.
Another ground for the refusal of acceptance of the cargo of anahaw fans by
Choju Co., Ltd. was that the bill of lading that was issued was not an on board
bill of lading, in clear violation of the terms of the letter of credit issued in
favor of petitioner. On cross-examination, it was likewise established that
petitioner, through its aforesaid president, was aware of this fact, thus:
Q If the container van, the loaded container van, was transported
back to South Harbor on June 27, 1980, would you tell us, Mr. Cu,
when the Bill of Lading was received by you?
A I received on June 30, 1980. I received at the same time so then I
gave the check.
xxx xxx xxx
Q So that in exchange of the Bill of Lading you issued your check also
dated June 30, 1980?
A Yes, sir.
Q And June 27, 1980 was the date of the Bill of Lading, did you notice
that the Bill of Lading states: 'Received for shipment'only? .
A Yes, sir.
 Q What did you say?
A I requested to issue me on board bill of lading.
Q When?
A In the same date of June 30.
Q What did they say?
A They said, they cannot.
xxx xxx xxx
Q Do you know the difference between a "received for shipment bill
of lading" and "on board bill of lading"?
A Yes, sir.
Q What's the difference?
A Received for shipment, you can receive the cargo even you don't
ship on board, that is placed in the warehouse; while on-board bill of
lading means that is loaded on the vessel, the goods.
xxx xxx xxx
Q In other words, it was not yet on board the vessel?
A During that time, not yet.
xxx xxx xxx
Q Do you know, Mr. Cu, that under the law, if your shipment is
received on board a vessel you can demand an on-board bill of lading
not only a received for shipment bill of lading.?
A Yes sir.
Q And did you demand from F.E. Zuellig the substitution of that
received for shipment bill of lading with an on-board bill of lading?
A Of course, instead they issue me a certification.
Q They give you a ... ?
A ... a certification that it was loaded on board on June 30.
xxx xxx xxx
Q Mr. Cu, are you aware of the conditions of the Letter of Credit to
the effect that there should be no transhipment and that it should
also get an on board bill of lading.?
A Yes sir.27
Undoubtedly, at the outset, petitioner knew that its buyer, Choju Co., Ltd.,
particularly required that there be an on board bill of lading, obviously due to
the guaranty afforded by such a bill of lading over any other kind of bill of
lading. The buyer could not have insisted on such a stipulation on a pure whim
or caprice, but rather because of its reliance on the safeguards to the cargo
that having an on board bill of lading ensured. Herein petitioner cannot feign
ignorance of the distinction between an "on board" and a "received for
shipment" bill of lading, as manifested by James Cu's testimony. It is only to
be expected that those long engaged in the export industry should be familiar
with business usages and customs.
In its petition, MMMC avers that "when petitioner teamed of what happened,
it saw private respondent F.E. Zuellig which, in turn, issued a certification that
as of June 30, 1980, the Anahaw fans were already on board MV Pacific
Despatcher (which means that the bill of lading is an on- board-bill of lading
or 'shipped' bill of lading as distinguished from a 'received for shipment'bill of
lading as governed by Sec. 3, par. 7, Carriage of Goods by Sea Act) ...."28 What
the petitioner would suggest is that said certification issued by F.E. Zuellig,
Inc., dated July 19, 1980, had the effect of converting the original "received
for shipment only" bill of lading into an "on board" bill of lading as required
by the buyer and was, therefore, by substantial compliance, not violative of
the contract.
An on board bill of lading is one in which it is stated that the goods have been
received on board the vessel which is to carry the goods, whereas a received
for shipment bill of lading is one in which it is stated that the goods have been
received for shipment with or without specifying the vessel by which the
goods are to be shipped. Received for shipment bills of lading are issued
whenever conditions are not normal and there is insufficiency of shipping
space.29An on board bill of lading is issued when the goods have been actually
placed aboard the ship with every reasonable expectation that the shipment
is as good as on its way.30 It is, therefore, understandable that a party to a
maritime contract would require an on board bill of lading because of its
apparent guaranty of certainty of shipping as well as the seaworthiness of the
vessel which is to carry the goods.
It cannot plausibly be said that the aforestated certification of F.E. Zuellig, Inc.
can qualify the bill of lading, as originally issued, into an on board bill of lading
as required by the terms of the letter of credit issued in favor of petitioner.
For one, the certification was issued only on July 19, 1980, way beyond the
expiry date of June 30, 1980 specified in the letter of credit for the
presentation of an on board bill of lading. Thus, even assuming that by a
liberal treatment of the certification it could have the effect of converting the
received for shipment bill of lading into an on board of bill of lading, as
petitioner would have us believe, such an effect may be achieved only as of
the date of its issuance, that is, on July 19, 1980 and onwards.
The fact remains, though, that on the crucial date of June 30, 1980 no on
board bill of lading was presented by petitioner in compliance with the terms
of the letter of credit and this default consequently negates its entitlement
to the proceeds thereof. Said certification, if allowed to operate retroactively,
would render illusory the guaranty afforded by an on board bill of lading, that
is, reasonable certainty of shipping the loaded cargo aboard the vessel
specified, not to mention that it would indubitably be stretching the concept
of substantial compliance too far.
Neither can petitioner escape hability by adverting to the bill of lading as a
contract of adhesion, thus warranting a more liberal consideration in its favor
to the extent of interpreting ambiguities against private respondents as
allegedly being the parties who gave rise thereto. The bill of lading is clear on
its face. There is no occasion to speak of ambiguities or obscurities
whatsoever. All of its terms and conditions are plainly worded and commonly
understood by those in the business.
It will be recalled that petitioner entered into the contract with Choju Co.,
Ltd. way back on May 20,1980 or over a month before the expiry date of the
letter of credit on June 30, 1980, thus giving it more than ample time to find
a carrier that could comply with the requirements of shipment under the
letter of credit. It is conceded that bills of lading constitute a class of contracts
of adhesion. However, as ruled in the earlier case of Ong Yiu vs. Court of
Appeals, et al.31 and reiterated in Servando, et al. vs. Philippine Steam
Navigation Co.,32 plane tickets as well as bills of lading are contracts not
entirely prohibited. The one who adheres to the contract is in reality free to
reject it entirely; if he adheres, he gives his consent. The respondent court
correctly observed in the present case that "when the appellant received the
bill of lading, it was tantamount to appellant's adherence to the terms and
conditions as embodied therein.33
In sum, petitioner had full knowledge that the bill issued to it contained terms
and conditions clearly violative of the requirements of the letter of credit.
Nonetheless, perhaps in its eagerness to conclude the transaction with its
Japanese buyer and in a race to beat the expiry date of the letter of credit,
petitioner took the risk of accepting the bill of lading even if it did not conform
with the indicated specifications, possibly entertaining a glimmer of hope and
imbued with a touch of daring that such violations may be overlooked, if not
disregarded, so long as the cargo is delivered on time.
Unfortunately, the risk did not pull through as hoped for. Any violation of the
terms and conditions of the letter of credit as would defeat its right to collect
the proceeds thereof was, therefore, entirely of the petitioner's making for
which it must bear the consequences. As finally averred by private
respondents, and with which we agree, "... the questions of whether or not
there was a violation of the terms and conditions of the letter of credit, or
whether or not such violation was the cause or motive for the rejection by
petitioner's Japanese buyer should not affect private respondents therein
since they were not privies to the terms and conditions of petitioner's letter
of credit and cannot therefore be held liable for any violation thereof by any
of the parties thereto."34
II. Petitioner contends that respondent court erred in holding it liable to
private respondents for P52,102.45 despite its exercise of its option to
abandon the cargo. It will be recalled that the trial court originally found
petitioner liable for P298,150.93, which amount consists of P51,271.02 for
freight, demurrage and other charges during the time that the goods were in
Japan and for its reshipment to Manila, P831.43 for charges paid to the
Manila International Port Terminal, and P246,043.43 for demurrage in Manila
from October 22, 1980 to June 18, 1981. On appeal, the Court of Appeals
limited petitioner's liability to P52,102.45 when it ruled:
As regards the amount of P51,271.02, which represents the freight
charges for the return shipment to Manila and the demurrage
charges in Japan, the same is supported by appellant's own letter
request (Exh. 2) for the return of the shipment to Manila at its
(appellant's) expense, and hence, it should be held liable therefor.
The amount of P831.43 was paid to the Manila International Port
Terminal upon arrival of the shipment in Manila for appellant's
account. It should properly be charged to said appellant.35
However, respondent court modified the trial court's decision by excluding
the award for P246,043.43 for demurrage in Manila from October 22, 1980
to June 18, 1981.
Demurrage, in its strict sense, is the compensation provided for in the
contract of affreightment for the detention of the vessel beyond the time
agreed on for loading and unloading. Essentially, demurrage is the claim for
damages for failure to accept delivery. In a broad sense, every improper
detention of a vessel may be considered a demurrage. Liability for
demurrage, using the word in its strictly technical sense, exists only when
expressly stipulated in the contract. Using the term in its broader sense,
damages in the nature of demurrage are recoverable for a breach of the
implied obligation to load or unload the cargo with reasonable dispatch, but
only by the party to whom the duty is owed and only against one who is a
party to the shipping contract.36 Notice of arrival of vessels or conveyances,
or of their placement for purposes of unloading is often a condition precedent
to the right to collect demurrage charges.
Private respondents, admittedly, have adopted the common practice of
requiring prior notice of arrival of the goods shipped before the shipper can
be held liable for demurrage, as declared by Wilfredo Hans, head of the
accounting department of F.E. Zuellig, Inc., on cross-examination as a witness
for private respondents:
Q ... you will agree with me that before one could be charged with
demurrage the shipper should be notified of the arrival of the
shipment?
A Yes sir.
Q Without such notification, there is no way by which the shipper
would know (of) such arrival?
A Yes.
Q And no charges of demurrage before the arrival of the cargo?
A Yes sir.37
Accordingly, on this score, respondent court ruled:
However, insofar as the demurrage charges of P246,043.43 from
October up to May 1980, arriv(al) in Manila, are concerned, We are
of the view that appellant should not be made to shoulder the same,
as it was not at fault nor was it responsible for said demurrage
charges. Appellee's own witness (Mabazza) testified that while the
goods arrived in Manila in October 1980, appellant was notified of
said arrival only in March 1981. No explanation was given for the
delay in notifying appellant. We agree with appellant that before it
could be charged for demurrage charges it should have been notified
of the arrival of the goods first.1âwphi1 Without such notification it
could not- be so charged because there was no way by which it would
know that the goods had already arrived for it to take custody of
them. Considering that it was only in March 1981 (Exh. K) that
appellant was notified of the arrival of the goods, although the goods
had actually arrived in October 1980 (tsn, Aug. 14, 1986, pp. 10-14),
appellant cannot be charged for demurrage from October 1980 to
March 1981. ...38
While being satisfied with the exclusion of demurrage charges in Manila for
the period from October 22,1980 to June 18,1981, petitioner nevertheless
assails the Court of Appeals' award of P52,102.43 in favor of private
respondents, consisting of P51,271.01 as freight and demurrage charges in
Japan and P831.43 for charges paid at the Manila International Port
Termninal.
Petitioner asserts that by virtue of the exercise of its option to abandon the
goods so as to allow private respondents to sell the same at a public auction
and to apply the proceeds thereof as payment for the shipping and
demurrage charges, it was released from liability for the sum of P52,102.43
since such amount represents the shipping and demurrage charges from
which it is considered to have been released due to the abandonment of
goods. It further argues that the shipping and demurrage charges from which
it was released by the exercise of the option to abandon the goods in favor of
private respondents could not have referred to the demurrage charges in
Manila because respondent court ruled that the same were not chargeable
to petitioner. Private respondents would rebut this contention by saying in
their memorandum that the abandonment of goods by petitioner was too
late and made in bad faith.39
On this point, we agree with petitioner. Ordinarily, the shipper is liable for
freightage due to the fact that the shipment was made for its benefit or under
its direction and, correspondingly, the carrier is entitled to collect charges for
its shipping services. This is particularly true in this case where the reshipment
of the goods was made at the instance of petitioner in its letter of August 29,
1980.40
However, in a letter dated March 20, 1981,41 private respondents belatedly
informed petitioner of the arrival of its goods from Japan and that if it wished
to take delivery of the cargo it would have to pay P51,271.02, but with the
last paragraph thereof stating as follows:
Please can you advise within 15 days of receipt of this letter whether
you intend to take delivery of this shipment, as alternatively we will
have to take legal proceedings in order to have the cargo auctioned
to recover the costs involved, as well as free the container which are
(sic) urgently required for export cargoes.
Clearly, therefore, private respondents unequivocally offered petitioner the
option of paying the shipping and demurrage charges in order to take delivery
of the goods or of abandoning the same so that private respondents could
sell them at public auction and thereafter apply the proceeds in payment of
the shipping and other charges.
Responding thereto, in a letter dated April 3, 1981, petitioner seasonably
communicated its decision to abandon to the goods in favor of private
respondents with the specific instruction that any excess of the proceeds over
the legal costs and charges be turned over to petitioner. Receipt of said letter
was acknowledged by private respondents, as revealed by the testimony of
Edwin Mabazza, a claim officer of F.E. Zuellig, Inc., on cross-examination.42
WHEREFORE, the judgment of respondent Court of Appeals is AFFIRMED with
the MODIFICATION that petitioner is likewise absolved of any hability and the
award of P52,102.45 with legal interest granted by respondent court on
private respondents' counterclaim is SET ASIDE, said counterclaim being
hereby DISMISSED, without pronouncement as to costs.
SO ORDERED.

Despite petitioner's exercise of the option to abandon the cargo, however,

private respondents sent a demand letter on June 22, 198143 insisting that
petitioner should pay the entire amount of P298,150.93 and, in another letter
dated Apiril 30, 1981,44 they stated that they win not accept the
abandonment of the goods and demanded that the outstanding account be
settled. The testimony of said Edwin Mabazza definitely admits and bears this
out.45

Now, there is no dispute that private respondents expressly and on their own
volition granted petitioner an option with respect to the satisfaction of
freightage and demurrage charges. Having given such option, especially since
it was accepted by petitioner, private respondents are estopped from
reneging thereon. Petitioner, on its part, was well within its right to exercise
said option. Private respondents, in giving the option, and petitioner, in
exercising that option, are concluded by their respective actions. To allow
either of them to unilaterally back out on the offer and on the exercise of the
option would be to countenance abuse of rights as an order of the day, doing
violence to the long entrenched principle of mutuality of contracts.
It will be remembered that in overland transportation, an unreasonable delay
in the delivery of transported goods is sufficient ground for the abandonment
of goods. By analogy, this can also apply to maritime transportation. Further,
with much more reason can petitioner in the instant case properly abandon
the goods, not only because of the unreasonable delay in its delivery but
because of the option which was categorically granted to and exercised by it
as a means of settling its liability for the cost and expenses of reshipment.
And, said choice having been duly communicated, the same is binding upon
the parties on legal and equitable considerations of estoppel.
RIGHTS OF PASSENGERS IN SEA VOYAGE 3) Interest at the legal rate of 6% per annum on the moral and
G.R. No. L-46340 April 28, 1983 exemplary damages as set forth above from the date of this
SWEET LINES, INC., petitioner, decision until said damages are fully paid;
vs. 4) P5,000.00 as attorney's fees; and
THE HONORABLE COURT OF APPEALS, MICAELA B. QUINTOS, FR. JOSE 5) The costs.
BACATAN, S.J., MARCIANO CABRAS and ANDREA VELOSO, respondents. Counterclaim dismissed.

RESOLUTION The governing provisions are found in the Code of Commerce and read as
follows:
ART. 614. A captain who, having agreed to make a voyage, fails
MELENCIO-HERRERA, J.:
to fulfill his undertaking, without being prevented by fortuitous
For having by-passed a port of call without previous notice, petitioner shipping
event or force majeure, shall indemnify all the losses which his
company and the ship captain were sued for damages by four of its passengers,
failure may cause, without prejudice to criminal penalties which
private respondents herein, before the then Court of First Instance of Cebu,
may be proper.
Branch VIII.
ART. 698. In case of interruption of a voyage already begun, the
Briefly, the facts of record show that private respondents purchased first- class
passengers shall only be obliged to pay the fare in proportion to
tickets from petitioner at the latter's office in Cebu City. They were to board
the distance covered, without right to recover damages if the
petitioner's vessel, M/V Sweet Grace, bound for Catbalogan, Western Samar.
interruption is due to fortuitous event or force majeure, but
Instead of departing at the scheduled hour of about midnight on July 8, 1972, the
with a right to indemnity, if the interruption should have been
vessel set sail at 3:00 A.M. of July 9, 1972 only to be towed back to Cebu due to
caused by the captain exclusively. If the interruption should be
engine trouble, arriving there at about 4:00 P.M. on the same day. Repairs having
caused by the disability of the vessel, and the passenger should
been accomplished, the vessel lifted anchor again on July 10, 1972 at around 8:00
agree to wait for her repairs, he may not be required to pay any
A.M.
increased fare of passage, but his living expenses during the
delay shall be for his own account.
Instead of docking at Catbalogan, which was the first port of call, the vessel
proceeded direct to Tacloban at around 9:00 P.M. of July 10, 1972. Private
The crucial factor then is the existence of a fortuitous event or force
respondents had no recourse but to disembark and board a ferryboat to
majeure. Without it, the right to damages and indemnity exists against a captain
Catbalogan.
who fails to fulfill his undertaking or where the interruption has been caused by
the captain exclusively.
Hence, this suit for damages for breach of contract of carriage which the Trial
Court, affirmed by respondent Appellate Court, awarded as follows:
As found by both Courts below, there was no fortuitous event or force
IN THE LIGHT OF THE FOREGOING OBSERVATIONS, judgment is
majeure which prevented the vessel from fulfilling its undertaking of taking
rendered ordering the defendant Sweet Lines, Incorporated to
private respondents to Catbalogan. In the first place, mechanical defects in the
pay to the plaintiffs the following:
carrier are not considered a caso fortuito that exempts the carrier from
l) P175,000.00 as moral damages divided among the plaintiffs as
responsibility. 1
follows: P30,000.00 for Mrs. Micaela B. Quintos, P26,000.00 for
Jesuit Father Jose Bacatan; P10,000.00 for Mrs. Andrea Veloso
In the second place, even granting arguendo that the engine failure was a
and P10,000.00 for plaintiff Mike Cabras;
fortuitous event, it accounted only for the delay in departure. When the vessel
2) P30,000.00 as exemplary or corrective damages;
finally left the port of Cebu on July 10, 1972, there was no longer any force
majeure that justified by-passing a port of call. The vessel was completely
repaired the following day after it was towed back to Cebu. In fact, after docking
at Tacloban City, it left the next day for Manila to complete its voyage. 2
The reason for by-passing the port of Catbalogan, as admitted by petitioner's
General Manager, was to enable the vessel to catch up with its schedule for the
next week. The record also discloses that there were 50 passengers for Tacloban
compared to 20 passengers for Catbalogan,3 so that the Catbalogan phase could
be scrapped without too much loss for the company.
In defense, petitioner cannot rely on the conditions in small bold print at the back
of the ticket reading.
The passenger's acceptance of this ticket shall be considered as an
acceptance of the following conditions:
3. In case the vessel cannot continue or complete the trip for any cause
whatsoever, the carrier reserves the right to bring the passenger to
his/her destination at the expense of the carrier or to cancel the ticket
and refund the passenger the value of his/her ticket; xxx xxx xxx
11. The sailing schedule of the vessel for which this ticket was issued is
subject to change without previous notice. (Exhibit "l -A")
Even assuming that those conditions are squarely applicable to the case at bar,
petitioner did not comply with the same. It did not cancel the ticket nor did it
refund the value of the tickets to private respondents. Besides, it was not the
vessel's sailing schedule that was involved. Private respondents' complaint is
directed not at the delayed departure the next day but at the by- passing of
Catbalogan, their destination. Had petitioner notified them previously, and
offered to bring them to their destination at its expense, or refunded the value
of the tickets purchased, perhaps, this controversy would not have arisen.
Furthermore, the conditions relied upon by petitioner cannot prevail over
Articles 614 and 698 of the Code of Commerce heretofore quoted.
The voyage to Catbalogan was "interrupted" by the captain upon instruction of
management. The "interruption" was not due to fortuitous event or for
majeure nor to disability of the vessel. Having been caused by the captain upon
instruction of management, the passengers' right to indemnity is evident. The
owner of a vessel and the ship agent shall be civilly liable for the acts of the
captain. 4
Under Article 2220 of the Civil Code, moral damages are justly due in breaches of
contract where the defendant acted fraudulently or in bad faith. Both the Trial
Court and the Appellate Court found that there was bad faith on the part of
petitioner in that:
(1) Defendants-appellants did not give notice to plaintiffs-
appellees as to the change of schedule of the vessel;
(2) Knowing fully well that it would take no less than fifteen
hours to effect the repairs of the damaged engine, defendants-
appellants instead made announcement of assurance that the
vessel would leave within a short period of time, and when
plaintiffs-appellees wanted to leave the port and gave up the
trip, defendants-appellants' employees would come and say,
'we are leaving, already.'
(3) Defendants-appellants did not offer to refund plaintiffs-
appellees' tickets nor provide them with transportation from
Tacloban City to Catbalogan. 5
That finding of bad faith is binding on us, since it is not the function of the Court
to analyze and review evidence on this point all over again, 6 aside from the fact
that we find it faithful to the meaning of bad faith enunciated thus:
Bad faith means a breach of a known duty through some motive
or interest or illwill. Self-enrichment or fraternal interest, and
not personal illwill may have been the motive, but it is malice
nevertheless.7
Under the circumstances, however, we find the award of moral damages
excessive and accordingly reduce them to P3,000.00, respectively, for each of the
private respondents.
The total award of attorney's fees of P5,000.00 is in order considering that the
case has reached this Tribunal.
Insofar as exemplary damages are concerned, although there was bad faith, we
are not inclined to grant them in addition to moral damages. Exemplary damages
cannot be recovered as a matter of right; the Court decides whether or not they
should be adjudicated.8 The objective to meet its schedule might have been
called for, but petitioner should have taken the necessary steps for the protection
of its passengers under its contract of carriage.
Article 2215(2) of the Civil Code 9 invoked by petitioner is inapplicable herein. The
harm done to private respondents outweighs any benefits they may have derived
from being transported to Tacloban instead of being taken to Catbalogan, their
destination and the vessel's first port of call, pursuant to its normal schedule.
ACCORDINGLY, the judgment appealed from is hereby modified in that petitioner
is hereby sentenced to indemnify private respondents in the sum of P3,000.00
each, without interest, plus P1,250.00, each, by way of att/rney's fees and
litigation expenses. Costs against petitioner.
SO ORDERED.
RIGHTS OF PASSENGERS IN SEA VOYAGE
[G.R. No. 118126. March 4, 1996]
TRANS-ASIA SHIPPING LINES, INC., petitioner, vs. COURT OF APPEALS and
ATTY. RENATO T. ARROYO, respondents.
DECISION
DAVIDE, JR., J.:
As formulated by the petitioner, the issue in this petition for review
on certiorari under Rule 45 of the Rules of Court is as follows:
In case of interruption of a vessels voyage and the consequent delay in that
vessels arrival at its port of destination, is the right of a passenger affected
thereby to be determined and governed by the vague Civil Code provision on
common carriers, or shall it be, in the absence of a specific provision
thereon, governed by Art. 698 of the Code of Commerce?[1]
The petitioner considers it a novel question of law.
Upon a closer evaluation, however, of the challenged decision of the
Court of Appeals of 23 November 1994,[2] vis-a-vis, the decision of 29 June
1992 in Civil Case No. 91-491 of the Regional Trial Court (RTC) of Cagayan de
Oro City, Branch 24,[3] as well as the allegations and arguments adduced by
the parties, we find the petitioners formulation of the issue imprecise. As this
Court sees it, what stands for resolution is a common carriers liability for
damages to a passenger who disembarked from the vessel upon its return to
the port of origin, after it suffered engine trouble and had to stop at sea,
having commenced the contracted voyage on one engine.
The antecedents are summarized by the Court of Appeals as follows:
Plaintiff [herein private respondent Atty. Renato Arroyo], a public attorney,
bought a ticket [from] defendant [herein petitioner], a corporation engaged
in x x x inter-island shipping, for the voyage of M/V Asia Thailand vessel to
Cagayan de Oro City from Cebu City on November 12, 1991.
At around 5:30 in the evening of November 12, 1991, plaintiff boarded the
M/V Asia Thailand vessel. At that instance, plaintiff noticed that some repair
works [sic] were being undertaken on the engine of the vessel. The vessel
departed at around 11:00 in the evening with only one (1) engine running.
After an hour of slow voyage, the vessel stopped near Kawit Island and
dropped its anchor thereat. After half an hour of stillness, some passengers
demanded that they should be allowed to return to Cebu City for they were
no longer willing to continue their voyage to Cagayan de Oro City. The captain
acceded [sic] to their request and thus the vessel headed back to Cebu City.
At Cebu City, plaintiff together with the other passengers who requested to
be brought back to Cebu City, were allowed to disembark. Thereafter, the
vessel proceeded to Cagayan de Oro City. Plaintiff, the next day, boarded the
M/V Asia Japan for its voyage to Cagayan de Oro City, likewise a vessel of
defendant.
On account of this failure of defendant to transport him to the place of
destination on November 12, 1991, plaintiff filed before the trial court a
complaint for damages against defendant.[4]
In his complaint, docketed as Civil Case No. 91-491, plaintiff (hereinafter
private respondent) alleged that the engines of the M/V Asia Thailand conked
out in the open sea, and for more than an hour it was stalled and at the mercy
of the waves, thus causing fear in the passengers. It sailed back
to Cebu City after it regained power, but for unexplained reasons, the
passengers, including the private respondent, were arrogantly told to
disembark without the necessary precautions against possible injury to them.
They were thus unceremoniously dumped, which only exacerbated the
private respondents mental distress. He further alleged that by reason of the
petitioners wanton, reckless, and willful acts, he was unnecessarily exposed
to danger and, having been stranded in Cebu City for a day, incurred
additional expenses and loss of income. He then prayed that he be awarded
P1,100.00, P50,000.00, and P25,000.00 as compensatory, moral, and
exemplary damages, respectively.[5]
In his pre-trial brief, the private respondent asserted that his complaint
was an action for damage&arising from bad faith, breach of contract and from
tort, with the former arising from the petitioners failure to carry [him] to his
place of destination as contracted, while the latter from the conduct of the
[petitioner] resulting [in] the infliction of emotional distress to the private
respondent.[6]
After due trial, the trial court rendered its decision[7] and ruled that the
action was only for breach of contract, with Articles 1170, 1172, and 1173 of
the Civil Code as applicable law - not Article 2180 of the same Code. It was of
the opinion that Article 1170 made a person liable for damages if, in the
performance of his obligation, he was guilty of fraud, negligence, or delay, or
in any manner contravened the tenor thereof; moreover, pursuant to Article
2201 of the same Code, to be entitled to damages, the non-performance of
the obligation must have been tainted not only by fraud, negligence, or delay,
but also bad faith, malice, and wanton attitude. It then disposed of the case
as follows:
WHEREFORE, it not appearing from the evidence that plaintiff was left in
the Port of Cebu because of the fault, negligence, malice or wanton attitude
of defendants employees, the complaint is DISMISSED. Defendants
counterclaim is likewise dismissed it not appearing also that filing of the case
by plaintiff was motivated by malice or bad faith.[8]
The trial court made the following findings to support its disposition:
In the light of the evidence adduced by the parties and of the above
provisions of the New Civil Code, the issue to be resolved, in the resolution of
this case is whether or not, defendant thru its employee in [sic] the night of
November 12, 1991, committed fraud, negligence, bad faith or malice when
it left plaintiff in the Port of Cebu when it sailed back to Cagayan de Oro City
after it has [sic] returned from Kawit Island.
Evaluation of the evidence of the parties tended to show nothing that
defendant committed fraud. As early as 3:00 p.m. of November 12, 1991,
defendant did not hide the fact that the cylinder head cracked. Plaintiff even
saw during its repair. If he had doubts as to the vessels capacity to sail, he had
time yet to take another boat. The ticket could be returned to defendant and
corresponding cash [would] be returned to him.
Neither could negligence, bad faith or malice on the part of defendant be
inferred from the evidence of the parties. When the boat arrived at
[the] Port of Cebu after it returned from Kawit Island, there was an
announcement that passengers who would like to disembark were given ten
(10) minutes only to do so. By this announcement, it could be inferred that
the boat will [sic] proceed to Cagayan de Oro City. If plaintiff entertained
doubts, he should have asked a member of the crew of the boat or better still,
the captain of the boat. But as admitted by him, he was of the impression
only that the boat will not proceed to Cagayan de Oro that evening so he
disembarked. He was instead, the ones [sic] negligent. Had he been prudent,
with the announcement that those who will disembark were given ten
minutes only, he should have lingered a little by staying in his cot and inquired
whether the boat will proceed to Cagayan de Oro City or not. Defendant
cannot be expected to be telling [sic] the reasons to each passenger.
Announcement by microphone was enough.
The court is inclined to believe that the story of defendant that the boat
returned to the Port of Cebu because of the request of the passengers in view
of the waves. That it did not return because of the defective engines as shown
by the fact that fifteen (15) minutes after the boat docked [at]
the Port of Cebu and those who wanted to proceed to Cagayan de Oro
disembarked, it left for Cagayan de Oro City.
The defendant got nothing when the boat returned to Cebu to let those who
did not want to proceed to Cagayan de Oro City including plaintiff
disembarked. On the contrary, this would mean its loss instead because it will
have to refund their tickets or they will use it the next trip without paying
anymore. It is hard therefore, to imagine how defendant by leaving plaintiff
in Cebu could have acted in bad faith, negligently, want only and with malice.
If plaintiff, therefore, was not able to [m]ake the trip that night of November
12, 1991, it was not because defendant maliciously did it to exclude him
[from] the trip. If he was left, it was because of his fault or negligence.[9]
Unsatisfied, the private respondent appealed to the Court of Appeals (CA-
G.R. CV No. 39901) and submitted for its determination the following
assignment of errors: (1) the trial court erred in not finding that the
defendant-appellee was guilty of fraud, delay, negligence, and bad faith; and
(2) the trial court erred in not awarding moral and exemplary damages.[10]
In its decision of 23 November 1994,[11] the Court of Appeals reversed the trial
courts decision by applying Article 1755 in relation to Articles 2201, 2208,
2217, and 2232 of the Civil Code and, accordingly, awarded compensatory,
moral, and exemplary damages as follows:
WHEREFORE, premises considered, the appealed decision is hereby
REVERSED and SET ASIDE and another one is rendered ordering defendant-
appellee to pay plaintiff-appellant:
1. P20,000.00 as moral damages;
2. P10,000.00 as exemplary damages;
3. P5,000.00 as attorneys fees;
4. Cost of suit.
SO ORDERED.[12]
It did not, however, allow the grant of damages for the delay in the
performance of the petitioners obligation as the requirement of demand set
forth in Article 1169 of the Civil Code had not been met by the private
respondent. Besides, it found that the private respondent offered no
evidence to prove that his contract of carriage with the petitioner provided
for liability in case of delay in departure, nor that a designation of the time of
departure was the controlling motive for the establishment of the contract.
On the latter, the court a quo observed that the private respondent even
admitted he was unaware of the vessels departure time, and it was only when
he boarded the vessel that he became aware of such. Finally, the respondent
Court found no reasonable basis for the private respondents belief that
demand was useless because the petitioner had rendered it beyond its power
to perform its obligation; on the contrary, he even admitted that the
petitioner had been assuring the passengers that the vessel would leave on
time, and that it could still perform its obligation to transport them as
scheduled.
To justify its award of damages, the Court of Appeals ratiocinated as follows:
It is an established and admitted fact that the vessel before the voyage had
undergone some repair work on the cylinder head of the engine. It is likewise
admitted by defendant-appellee that it left the port of Cebu City with only
one engine running. Defendant-appellee averred:
x x x The dropping of the vessels anchor after running slowly on only one
engine when it departed earlier must have alarmed some nervous passengers
xxx
The entries in the logbook which defendant-appellee itself offered as
evidence categorically stated therein that the vessel stopped
at Kawit Island because of engine trouble. It reads:
2330 HRS STBD ENGINE EMERGENCY STOP
2350 HRS DROP ANCHOR DUE TO. ENGINE TROUBLE, 2 ENGINE STOP.
The stoppage was not to start and synchronized [sic] the engines of the
vessel as claimed by defendant-appellee. It was because one of the engines
of the vessel broke down; it was because of the disability of the vessel which
from the very beginning of the voyage was known to defendant-appellee.
Defendant-appellee from the very start of the voyage knew for a fact
that the vessel was not yet in its sailing condition because the second engine
was still being repaired. Inspite of this knowledge, defendant-appellee still
proceeded to sail with only one engine running.
Defendant-appellee at that instant failed to exercise the diligence which
all common carriers should exercise in transporting or carrying passengers.
The law does not merely require extraordinary diligence in the performance
of the obligation. The law mandates that common carrier[s] should
exercise utmost diligence in the transport of passengers.
Article 1755 of the New Civil Code provides:
ART. 1755. A common carrier is bound to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very
cautious persons, with a due regard for all the circumstances.
Utmost diligence of a VERY CAUTIOUS person dictates that defendant-
appellee should have pursued the voyage only when its vessel was already fit
to sail. Defendant-appellee should have made certain that the vessel [could]
complete the voyage before starting [to] sail. Anything less than this, the
vessel [could not] sail x x x with so many passengers on board it.
However, defendant-appellant [sic] in complete disregard of the safety
of the passengers, chose to proceed with its voyage even if only one engine
was running as the second engine was still being repaired during the voyage.
Defendant-appellee disregarded the not very remote possibility that because
of the disability of the vessel, other problems might occur which would
endanger the lives of the passengers sailing with a disabled vessel.
As expected, x x x engine trouble occurred. Fortunate[ly] for defendant-
appellee, such trouble only necessitated the stoppage of the vessel and did
not cause the vessel to capsize. No wonder why some passengers requested
to be brought back to Cebu City. Common carriers which are mandated to
exercise utmost diligence should not be taking these risks.
On this premise, plaintiff-appellant should not be faulted why he chose
to disembark from the vessel with the other passengers when it returned
back to Cebu City. Defendant-appellee may call him a very panicky passenger
or a nervous person, but this will not relieve defendant-appellee from the
liability it incurred for its failure to exercise utmost diligence.[13] xxx xxx xxx
 As to the second assigned error, we find that plaintiff-appellant is
entitled to the award of moral and exemplary damages for the breach
committed by defendant-appellee.
As discussed, defendant-appellee in sailing to Cagayan de Oro City with
only one engine and with full knowledge of the true condition of the vessel,
acted in bad faith with malice, in complete disregard for the safety of the
passengers and only for its own personal advancement/interest.
The Civil Code provides:
Art 2201. xxx xxx xxx In case of fraud, bad faith, malice or wanton attitude,
the obligor shall be responsible for all damages which may be reasonably
attributed to the non-performance of the obligation.
Plaintiff-appellant is entitled to moral damages for the mental anguish,
fright and serious anxiety he suffered during the voyage when the vessels
engine broke down and when he disembarked from the vessel during the wee
hours of the morning at Cebu City when it returned.[14]
Moral damages are recoverable in a damage suit predicated upon a
breach of contract of carriage where it is proved that the carrier was guilty of
fraud or bad faith even if death does not result.[15]
Fraud and bad faith by defendant-appellee having been established, the
award of moral damages is in order.[16]
To serve as a deterrent to the commission of similar acts in the future,
exemplary damages should be imposed upon defendant-
appellee.[17] Exemplary damages are designed by our civil law to permit the
courts to reshape behavior that is socially deleterious in its consequence by
creating x x x negative incentives or deterrents against such behavior.[18]
Moral damages having been awarded, exemplary damages maybe
properly awarded. When entitlement to moral damages has been
established, the award of exemplary damages is proper.[19]
The petitioner then instituted this petition and submitted the question
of law earlier adverted to.
Undoubtedly, there was, between the petitioner and the private
respondent, a contract of common carriage. The laws of primary application
then are the provisions on common carriers under Section 4, Chapter 3, Title
VIII, Book IV of the Civil Code, while for all other matters not regulated
thereby, the Code of Commerce and special laws.[20]
Under Article 1733 of the Civil Code, the petitioner was bound to
observe extraordinary diligence in ensuring the safety of the private
respondent. That meant that the petitioner was, pursuant to Article 1755 of
the said Code, bound to carry the private respondent safely as far as human
care and foresight could provide, using the utmost diligence of very cautious
persons, with due regard for all the circumstances. In this case, we are in full
accord with the Court of Appeals that the petitioner failed to discharge this
obligation.
Before commencing the contracted voyage, the petitioner undertook
some repairs on the cylinder head of one of the vessels engines. But even
before it could finish these repairs, it allowed the vessel to leave the port of
origin on only one functioning engine, instead of two. Moreover, even the
lone functioning engine was not in perfect condition as sometime after it had
run its course, it conked out. This caused the vessel to stop and remain adrift
at sea, thus in order to prevent the ship from capsizing, it had to drop anchor.
Plainly, the vessel was unseaworthy even before the voyage began. For a
vessel to be seaworthy, it must be adequately equipped for the voyage and
manned with a sufficient number of competent officers and crew.[21] The
failure of a common carrier to maintain in seaworthy condition its vessel
involved in a contract of carriage is a clear breach of is duty prescribed in
Article 1755 of the Civil Code.
As to its liability for damages to the private respondent, Article 1764 of
the Civil Code expressly provides:
ART. 1764. Damages in cases comprised in this Section shall be awarded in
accordance with Title XVIII of this Book, concerning Damages. Article 2206
shall also apply to the death of a passenger caused by the breach of contract
by common carrier.
The damages comprised in Title XVIII of the Civil Code are actual or
compensatory, moral, nominal, temperate or moderate, liquidated, and
exemplary.
 In his complaint, the private respondent claims actual or compensatory,
moral, and exemplary damages.
Actual or compensatory damages represent the adequate compensation
for pecuniary loss suffered and for profits the obligee failed to obtain.[22]
In contracts or quasi-contracts, the obligor is liable for all the damages
which may be reasonably attributed to the non-performance of the obligation
if he is guilty of fraud, bad faith, malice, or wanton attitude.[23]
Moral damages include moral suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, or similar injury. They may be recovered in the cases enumerated
in Article 2219 of the Civil Code, likewise, if they are the proximate result of,
as in this case, the petitioners breach of the contract of carriage.[24] Anent a
breach of a contract of common carriage, moral damages may be awarded if
the common carrier, like the petitioner, acted fraudulently or in bad faith.[25]
Exemplary damages are imposed by way of example or correction for
the public good, in addition to moral, temperate, liquidated or compensatory
damages.[26] In contracts and quasi-contracts, exemplary damages may be
awarded if the defendant acted in a wanton fraudulent, reckless, oppressive
or malevolent manner.[27] It cannot, however, be considered as a matter of
right; the court having to decide whether or not they should be
adjudicated.[28] Before the court may consider an award for exemplary
damages, the plaintiff must first show that he is entitled to moral, temperate
or compensatory damages; but it is not necessary that he prove the monetary
value thereof.[29]
The Court of Appeals did not grant the private respondent actual or
compensatory damages, reasoning that no delay was incurred since there
was no demand, as required by Article 1169 of the Civil Code. This article,
however, finds no application in this case because, as found by the
respondent Court, there was in fact no delay in the commencement of the
contracted voyage. If any delay was incurred, it was after the commencement
of such voyage, more specifically, when the voyage was subsequently
interrupted when the vessel had to stop near Kawit Island after the only
functioning engine conked out.
As to the rights and duties of the parties strictly arising out of such delay,
the Civil Code is silent. However, as correctly pointed out by the petitioner,
Article 698 of the Code of Commerce specifically provides for such a situation.
It reads: In case a voyage already begun should be interrupted, the
passengers shall be obliged to pay the fare in proportion to the distance
covered, without right to recover for losses and damages if the interruption
is due to fortuitous event or force majeure, but with a right to indemnity if
the interruption should have been caused by the captain exclusively. If the
interruption should be caused by the disability of the vessel and a passenger
should agree to await the repairs, he may not be required to pay any
increased price of passage, but his living expenses during the stay shall be for
his own account.
This article applies suppletorily pursuant to Article 1766 of the Civil Code.
Of course, this does not suffice for a resolution of the case at bench for,
as earlier stated, the cause of the delay or interruption was the petitioners
failure to observe extraordinary diligence. Article 698 must then be read
together with Articles 2199, 2200, 2201, and 2208 in relation to Article 21 of
the Civil Code. So read, it means that the petitioner is liable for any pecuniary
loss or loss of profits which the private respondent may have suffered by
reason thereof. For the private respondent, such would be the loss of income
if unable to report to his office on the day he was supposed to arrive were it
not for the delay. This, however, assumes that he stayed on the vessel and
was with it when it thereafter resumed its voyage; but he did not. As he and
some passengers resolved not to complete the voyage, the vessel had to
return to its port of origin and allow them to disembark. The private
respondent then took the petitioners other vessel the following day, using
the ticket he had purchased for the previous days voyage.
Any further delay then in the private respondents arrival at the port of
destination was caused by his decision to disembark. Had he remained on the
first vessel, he would have reached his destination at noon of 13 November
1991, thus been able to report to his office in the afternoon. He, therefore,
would have lost only the salary for half of a day. But actual or compensatory
damages must be proved,[30] which the private respondent failed to do. There
is no convincing evidence that he did not receive his salary for 13 November
1991 nor that his absence was not excused.
 We likewise fully agree with the Court of Appeals that the petitioner is 1. When exemplary damages are awarded;
liable for moral and exemplary damages. In allowing its unseaworthy M/V 2. When the defendants act or omission has compelled the
Asia Thailand to leave the port of origin and undertake the contracted voyage, plaintiff to litigate with third persons or to incur expenses to
with full awareness that it was exposed to perils of the sea, it deliberately protect his interest.
disregarded its solemn duty to exercise extraordinary diligence and obviously
acted with bad faith and in a wanton and reckless manner. On this score, This Court holds that the above does not satisfy the benchmark of factual,
however, the petitioner asserts that the safety of the vessel and passengers legal and equitable justification needed as basis for an award of attorneys
was never at stake because the sea was calm in the vicinity where it stopped fees.[37] In sum, for lack of factual and legal basis, the award of attorneys fees
as faithfully recorded in the vessels log book (Exhibit 4). Hence, the petitioner must be deleted.
concludes, the private respondent was merely over-reacting to the situation
obtaining then.[31] WHEREFORE, the instant petition is DENIED and the challenged decision
of the Court of Appeals in CA-G.R. CV No. 39901 is AFFIRMED subject to the
We hold that the petitioners defense cannot exculpate it nor mitigate its modification as to the award for attorneys fees which is hereby SET ASIDE.
liability. On the contrary, such a claim demonstrates beyond cavil the Costs against the petitioner.
petitioners lack of genuine concern for the safety of its passengers. It was, SO ORDERED.
perhaps, only providential that the sea happened to be calm. Even so, the
petitioner should not expect its passengers to act in the manner it desired.
The passengers were not stoics; becoming alarmed, anxious, or frightened at
the stoppage of a vessel at sea in an unfamiliar zone at nighttime is not the
sole prerogative of the faint-hearted. More so in the light of the many
tragedies at sea resulting in the loss of lives of hopeless passengers and
damage to property simply because common carriers failed in their duty to
exercise extraordinary diligence in the performance of their obligations.

We cannot, however, give our affirmance to the award of attorneys fees.

Under Article 2208 of the Civil Code, these are recoverable only in the concept
of actual damages,[32] not as moral damages[33] nor judicial costs.[34] Hence, to
merit such an award, it is settled that the amount thereof must be
proven.[35] Moreover, such must be specifically prayed for - as was not done
in this case - and may not be deemed incorporated within a general prayer
for such other relief and remedy as this court may deem just and
equitable.[36] Finally, it must be noted that aside from the following, the body
of the respondent Courts decision was devoid of any statement regarding
attorneys fees:

Plaintiff-appellant was forced to litigate in order that he can claim moral and
exemplary damages for the suffering he encurred [sic]. He is entitled to
attorneys fees pursuant to Article 2208 of the Civil Code. It states:
Article 2208. In the absence of stipulation, attorney s fees and expenses of
litigation, other than judicial costs cannot be recovered except:
CARRIAGE OF GOODS BY SEA ACT
G.R. No. L-69044 May 29, 1987
EASTERN SHIPPING LINES, INC., petitioner, vs. INTERMEDIATE APPELLATE
COURT and DEVELOPMENT INSURANCE & SURETY
CORPORATION, respondents.
GR No. 71478 May 29, 1987
EASTERN SHIPPING LINES, INC., petitioner, vs. THE NISSHIN FIRE AND
MARINE INSURANCE CO., and DOWA FIRE & MARINE INSURANCE CO.,
LTD., respondents.
MELENCIO-HERRERA, J.:
These two cases, both for the recovery of the value of cargo insurance, arose
from the same incident, the sinking of the M/S ASIATICA when it caught fire,
resulting in the total loss of ship and cargo.
The basic facts are not in controversy:
In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a
vessel operated by petitioner Eastern Shipping Lines, Inc., (referred to
hereinafter as Petitioner Carrier) loaded at Kobe, Japan for transportation to
Manila, 5,000 pieces of calorized lance pipes in 28 packages valued at
P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7 cases of
spare parts valued at P92,361.75, consigned to Central Textile Mills, Inc. Both
sets of goods were insured against marine risk for their stated value with
respondent Development Insurance and Surety Corporation.
In G.R. No. 71478, during the same period, the same vessel took on board 128
cartons of garment fabrics and accessories, in two (2) containers, consigned
to Mariveles Apparel Corporation, and two cases of surveying instruments
consigned to Aman Enterprises and General Merchandise. The 128 cartons
were insured for their stated value by respondent Nisshin Fire & Marine
Insurance Co., for US $46,583.00, and the 2 cases by respondent Dowa Fire &
Marine Insurance Co., Ltd., for US $11,385.00.
Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting
in the total loss of ship and cargo. The respective respondent Insurers paid
the corresponding marine insurance values to the consignees concerned and
were thus subrogated unto the rights of the latter as the insured.
G.R. NO. 69044
On May 11, 1978, respondent Development Insurance & Surety Corporation
(Development Insurance, for short), having been subrogated unto the rights
of the two insured companies, filed suit against petitioner Carrier for the
recovery of the amounts it had paid to the insured before the then Court of
First instance of Manila, Branch XXX (Civil Case No. 6087).
Petitioner-Carrier denied liability mainly on the ground that the loss was due
to an extraordinary fortuitous event, hence, it is not liable under the law.
On August 31, 1979, the Trial Court rendered judgment in favor of
Development Insurance in the amounts of P256,039.00 and P92,361.75,
respectively, with legal interest, plus P35,000.00 as attorney's fees and costs.
Petitioner Carrier took an appeal to the then Court of Appeals which, on
August 14, 1984, affirmed.
Petitioner Carrier is now before us on a Petition for Review on Certiorari.
G.R. NO. 71478
On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN
for short), and Dowa Fire & Marine Insurance Co., Ltd. (DOWA, for brevity),
as subrogees of the insured, filed suit against Petitioner Carrier for the
recovery of the insured value of the cargo lost with the then Court of First
Instance of Manila, Branch 11 (Civil Case No. 116151), imputing
unseaworthiness of the ship and non-observance of extraordinary diligence
by petitioner Carrier.
Petitioner Carrier denied liability on the principal grounds that the fire which
caused the sinking of the ship is an exempting circumstance under Section
4(2) (b) of the Carriage of Goods by Sea Act (COGSA); and that when the loss
of fire is established, the burden of proving negligence of the vessel is shifted
to the cargo shipper.
On September 15, 1980, the Trial Court rendered judgment in favor of
NISSHIN and DOWA in the amounts of US $46,583.00 and US $11,385.00,
respectively, with legal interest, plus attorney's fees of P5,000.00 and costs.
On appeal by petitioner, the then Court of Appeals on September 10, 1984,
affirmed with modification the Trial Court's judgment by decreasing the
amount recoverable by DOWA to US $1,000.00 because of $500 per package
limitation of liability under the COGSA.
Hence, this Petition for Review on certiorari by Petitioner Carrier.
Both Petitions were initially denied for lack of merit. G.R. No. 69044 on
January 16, 1985 by the First Division, and G. R. No. 71478 on September 25,
1985 by the Second Division. Upon Petitioner Carrier's Motion for
Reconsideration, however, G.R. No. 69044 was given due course on March
25, 1985, and the parties were required to submit their respective
Memoranda, which they have done.
On the other hand, in G.R. No. 71478, Petitioner Carrier sought
reconsideration of the Resolution denying the Petition for Review and moved
for its consolidation with G.R. No. 69044, the lower-numbered case, which
was then pending resolution with the First Division. The same was granted;
the Resolution of the Second Division of September 25, 1985 was set aside
and the Petition was given due course.
At the outset, we reject Petitioner Carrier's claim that it is not the operator of
the M/S Asiatica but merely a charterer thereof. We note that in G.R. No.
69044, Petitioner Carrier stated in its Petition:
There are about 22 cases of the "ASIATICA" pending in
various courts where various plaintiffs are represented by
various counsel representing various consignees or insurance
companies. The common defendant in these cases is
petitioner herein, being the operator of said vessel.
Petitioner Carrier should be held bound to said admission. As a general rule,
the facts alleged in a party's pleading are deemed admissions of that party
and binding upon it. 2 And an admission in one pleading in one action may be
received in evidence against the pleader or his successor-in-interest on the
trial of another action to which he is a party, in favor of a party to the latter
action. 3
The threshold issues in both cases are: (1) which law should govern — the
Civil Code provisions on Common carriers or the Carriage of Goods by
Sea Act? and (2) who has the burden of proof to show negligence of the
carrier?
On the Law Applicable
The law of the country to which the goods are to be transported governs the
liability of the common carrier in case of their loss, destruction or
deterioration. 4 As the cargoes in question were transported from Japan to
the Philippines, the liability of Petitioner Carrier is governed primarily by the
Civil Code. 5 However, in all matters not regulated by said Code, the rights and
obligations of common carrier shall be governed by the Code of Commerce
and by special laws. 6 Thus, the Carriage of Goods by Sea Act, a special law, is
suppletory to the provisions of the Civil Code. 7
On the Burden of Proof
Under the Civil Code, common carriers, from the nature of their business and
for reasons of public policy, are bound to observe extraordinary diligence in
the vigilance over goods, according to all the circumstances of each
case. 8Common carriers are responsible for the loss, destruction, or
deterioration of the goods unless the same is due to any of the following
causes only:
(1) Flood, storm, earthquake, lightning or other natural
disaster or calamity;
xxx xxx xxx 9
Petitioner Carrier claims that the loss of the vessel by fire exempts it from
liability under the phrase "natural disaster or calamity. " However, we are of
the opinion that fire may not be considered a natural disaster or calamity.
This must be so as it arises almost invariably from some act of man or by
human means. 10 It does not fall within the category of an act of God unless
caused by lightning 11 or by other natural disaster or calamity. 12 It may even
be caused by the actual fault or privity of the carrier. 13
Article 1680 of the Civil Code, which considers fire as an extraordinary
fortuitous event refers to leases of rural lands where a reduction of the rent
is allowed when more than one-half of the fruits have been lost due to such
event, considering that the law adopts a protection policy towards
agriculture. 14
As the peril of the fire is not comprehended within the exception in Article
1734, supra, Article 1735 of the Civil Code provides that all cases than those
mention in Article 1734, the common carrier shall be presumed to have been
at fault or to have acted negligently, unless it proves that it has observed the
extraordinary deligence required by law.
In this case, the respective Insurers. as subrogees of the cargo shippers, have
proven that the transported goods have been lost. Petitioner Carrier has also
proved that the loss was caused by fire. The burden then is upon Petitioner
Carrier to proved that it has exercised the extraordinary diligence required by
law. In this regard, the Trial Court, concurred in by the Appellate Court, made
the following Finding of fact:
The cargoes in question were, according to the witnesses
defendant placed in hatches No, 2 and 3 cf the vessel,
Boatswain Ernesto Pastrana noticed that smoke was coming
out from hatch No. 2 and hatch No. 3; that where the smoke
was noticed, the fire was already big; that the fire must have
started twenty-four 24) our the same was noticed; that
carbon dioxide was ordered released and the crew was
ordered to open the hatch covers of No, 2 tor
commencement of fire fighting by sea water: that all of these
effort were not enough to control the fire.
Pursuant to Article 1733, common carriers are bound to
extraordinary diligence in the vigilance over the goods. The
evidence of the defendant did not show that extraordinary
vigilance was observed by the vessel to prevent the
occurrence of fire at hatches numbers 2 and 3. Defendant's
evidence did not likewise show he amount of diligence made
by the crew, on orders, in the care of the cargoes. What
appears is that after the cargoes were stored in the hatches,
no regular inspection was made as to their condition during
the voyage. Consequently, the crew could not have even
explain what could have caused the fire. The defendant, in
the Court's mind, failed to satisfactorily show that
extraordinary vigilance and care had been made by the crew
to prevent the occurrence of the fire. The defendant, as a
common carrier, is liable to the consignees for said lack of
deligence required of it under Article 1733 of the Civil
Code. 15
Having failed to discharge the burden of proving that it had exercised the
extraordinary diligence required by law, Petitioner Carrier cannot escape
liability for the loss of the cargo.
And even if fire were to be considered a "natural disaster" within the meaning
of Article 1734 of the Civil Code, it is required under Article 1739 of the same
Code that the "natural disaster" must have been the "proximate and only
cause of the loss," and that the carrier has "exercised due diligence to prevent
or minimize the loss before, during or after the occurrence of the disaster. "
This Petitioner Carrier has also failed to establish satisfactorily.
Nor may Petitioner Carrier seek refuge from liability under the Carriage of
Goods by Sea Act, It is provided therein that:
Sec. 4(2). Neither the carrier nor the ship shall be responsible
for loss or damage arising or resulting from
(b) Fire, unless caused by the actual fault or privity of the
carrier.
xxx xxx xxx
In this case, both the Trial Court and the Appellate Court, in effect, found, as
a fact, that there was "actual fault" of the carrier shown by "lack of diligence"
in that "when the smoke was noticed, the fire was already big; that the fire
must have started twenty-four (24) hours before the same was noticed; " and
that "after the cargoes were stored in the hatches, no regular inspection was
made as to their condition during the voyage." The foregoing suffices to show
that the circumstances under which the fire originated and spread are such
as to show that Petitioner Carrier or its servants were negligent in connection
therewith. Consequently, the complete defense afforded by the COGSA when
loss results from fire is unavailing to Petitioner Carrier.
On the US $500 Per Package Limitation:
Petitioner Carrier avers that its liability if any, should not exceed US $500 per
package as provided in section 4(5) of the COGSA, which reads:
(5) Neither the carrier nor the ship shall in any event be or
become liable for any loss or damage to or in connection with
the transportation of goods in an amount exceeding $500 per
package lawful money of the United States, or in case of
goods not shipped in packages, per customary freight unit, or
the equivalent of that sum in other currency, unless the
nature and value of such goods have been declared by the
shipper before shipment and inserted in bill of lading. This
declaration if embodied in the bill of lading shall be prima
facie evidence, but all be conclusive on the carrier.
By agreement between the carrier, master or agent of the
carrier, and the shipper another maximum amount than that
mentioned in this paragraph may be fixed: Provided, That
such maximum shall not be less than the figure above named.
In no event shall the carrier be Liable for more than the
amount of damage actually sustained. xxx xxx xxx
Article 1749 of the New Civil Code also allows the limitations of liability in this
wise:
 Art. 1749. A stipulation that the common carrier's liability as
limited to the value of the goods appearing in the bill of
lading, unless the shipper or owner declares a greater value,
is binding.
It is to be noted that the Civil Code does not of itself limit the liability of the
common carrier to a fixed amount per package although the Code expressly
permits a stipulation limiting such liability. Thus, the COGSA which is
suppletory to the provisions of the Civil Code, steps in and supplements the
Code by establishing a statutory provision limiting the carrier's liability in the
absence of a declaration of a higher value of the goods by the shipper in the
bill of lading. The provisions of the Carriage of Goods by.Sea Act on limited
liability are as much a part of a bill of lading as though physically in it and as
much a part thereof as though placed therein by agreement of the parties. 16
In G.R. No. 69044, there is no stipulation in the respective Bills of Lading
(Exhibits "C-2" and "I-3") 1 7 limiting the carrier's liability for the loss or
destruction of the goods. Nor is there a declaration of a higher value of the
goods. Hence, Petitioner Carrier's liability should not exceed US $500 per
package, or its peso equivalent, at the time of payment of the value of the
goods lost, but in no case "more than the amount of damage actually
sustained."
The actual total loss for the 5,000 pieces of calorized lance pipes was
P256,039 (Exhibit "C"), which was exactly the amount of the insurance
coverage by Development Insurance (Exhibit "A"), and the amount affirmed
to be paid by respondent Court. The goods were shipped in 28 packages
(Exhibit "C-2") Multiplying 28 packages by $500 would result in a product of
$14,000 which, at the current exchange rate of P20.44 to US $1, would be
P286,160, or "more than the amount of damage actually sustained."
Consequently, the aforestated amount of P256,039 should be upheld.
With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual
value was P92,361.75 (Exhibit "I"), which is likewise the insured value of the
cargo (Exhibit "H") and amount was affirmed to be paid by respondent Court.
however, multiplying seven (7) cases by $500 per package at the present
prevailing rate of P20.44 to US $1 (US $3,500 x P20.44) would yield P71,540
only, which is the amount that should be paid by Petitioner Carrier for those
spare parts, and not P92,361.75.
In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are
concerned, the amount awarded to DOWA which was already reduced to
$1,000 by the Appellate Court following the statutory $500 liability per
package, is in order.
In respect of the shipment of 128 cartons of garment fabrics in two (2)
containers and insured with NISSHIN, the Appellate Court also limited
Petitioner Carrier's liability to $500 per package and affirmed the award of
$46,583 to NISSHIN. it multiplied 128 cartons (considered as COGSA
packages) by $500 to arrive at the figure of $64,000, and explained that "since
this amount is more than the insured value of the goods, that is $46,583, the
Trial Court was correct in awarding said amount only for the 128 cartons,
which amount is less than the maximum limitation of the carrier's liability."
We find no reversible error. The 128 cartons and not the two (2) containers
should be considered as the shipping unit.
In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the
consignees of tin ingots and the shipper of floor covering brought action
against the vessel owner and operator to recover for loss of ingots and floor
covering, which had been shipped in vessel — supplied containers. The
U.S. District Court for the Southern District of New York rendered judgment
for the plaintiffs, and the defendant appealed. The United States Court of
Appeals, Second Division, modified and affirmed holding that:
When what would ordinarily be considered packages are
shipped in a container supplied by the carrier and the
number of such units is disclosed in the shipping documents,
each of those units and not the container constitutes the
"package" referred to in liability limitation provision of
Carriage of Goods by Sea Act. Carriage of Goods by Sea Act,
4(5), 46 U.S.C.A.& 1304(5).
Even if language and purposes of Carriage of Goods by Sea
Act left doubt as to whether carrier-furnished containers
whose contents are disclosed should be treated as packages,
the interest in securing international uniformity would
suggest that they should not be so treated. Carriage of Goods
by Sea Act, 4(5), 46 U.S.C.A. 1304(5).
... After quoting the statement in Leather's Best, supra, 451 F
2d at 815, that treating a container as a package is
inconsistent with the congressional purpose of establishing a
reasonable minimum level of liability, Judge Beeks wrote,
414 F. Supp. at 907 (footnotes omitted):
Although this approach has not completely
escaped criticism, there is, nonetheless,
much to commend it. It gives needed
recognition to the responsibility of the
courts to construe and apply the statute as
enacted, however great might be the
temptation to "modernize" or reconstitute it
by artful judicial gloss. If COGSA's package
limitation scheme suffers from internal
illness, Congress alone must undertake the
surgery. There is, in this regard, obvious
wisdom in the Ninth Circuit's conclusion in
Hartford that technological advancements,
whether or not forseeable by the COGSA
promulgators, do not warrant a distortion or
artificial construction of the statutory term
"package." A ruling that these large reusable
metal pieces of transport equipment qualify
as COGSA packages — at least where, as
here, they were carrier owned and
supplied — would amount to just such a
distortion.
Certainly, if the individual crates or cartons
prepared by the shipper and containing his
goods can rightly be considered "packages"
standing by themselves, they do not
suddenly lose that character upon being
stowed in a carrier's container. I would liken
these containers to detachable stowage
compartments of the ship. They simply serve
to divide the ship's overall cargo stowage
space into smaller, more serviceable loci.
Shippers' packages are quite literally
"stowed" in the containers utilizing
stevedoring practices and materials
analogous to those employed in traditional
on board stowage.
In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807
(E.D. Va.) rev'd on other grounds, 595 F 2nd 943 (4 Cir. 1979),
another district with many maritime cases followed Judge
Beeks' reasoning in Matsushita and similarly rejected the
functional economics test. Judge Kellam held that when rolls
of polyester goods are packed into cardboard cartons which
are then placed in containers, the cartons and not the
containers are the packages.
xxx xxx xxx
The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test:
Eurygenes concerned a shipment of stereo equipment
packaged by the shipper into cartons which were then placed
by the shipper into a carrier- furnished container. The
number of cartons was disclosed to the carrier in the bill of
lading. Eurygenes followed the Mitsui test and treated the
cartons, not the container, as the COGSA packages. However,
Eurygenes indicated that a carrier could limit its liability to
$500 per container if the bill of lading failed to disclose the
number of cartons or units within the container, or if the
parties indicated, in clear and unambiguous language, an
agreement to treat the container as the package.
(Admiralty Litigation in Perpetuum: The
Continuing Saga of Package Limitations and
Third World Delivery Problems by Chester D.
Hooper & Keith L. Flicker, published in
Fordham International Law Journal, Vol. 6,
1982-83, Number 1) (Emphasis supplied)
In this case, the Bill of Lading (Exhibit "A") disclosed the following data:
2 Containers
(128) Cartons)
Men's Garments Fabrics and Accessories Freight Prepaid
Say: Two (2) Containers Only.
Considering, therefore, that the Bill of Lading clearly disclosed the contents
of the containers, the number of cartons or units, as well as the nature of the
goods, and applying the ruling in the Mitsui and Eurygenes cases it is clear
that the 128 cartons, not the two (2) containers should be considered as the
shipping unit subject to the $500 limitation of liability.
True, the evidence does not disclose whether the containers involved herein
were carrier-furnished or not. Usually, however, containers are provided by
the carrier. 19 In this case, the probability is that they were so furnished for
Petitioner Carrier was at liberty to pack and carry the goods in containers if
they were not so packed. Thus, at the dorsal side of the Bill of Lading (Exhibit
"A") appears the following stipulation in fine print:
11. (Use of Container) Where the goods receipt of which is
acknowledged on the face of this Bill of Lading are not
already packed into container(s) at the time of receipt, the
Carrier shall be at liberty to pack and carry them in any type
of container(s).
The foregoing would explain the use of the estimate "Say: Two (2) Containers
Only" in the Bill of Lading, meaning that the goods could probably fit in two
(2) containers only. It cannot mean that the shipper had furnished the
containers for if so, "Two (2) Containers" appearing as the first entry would
have sufficed. and if there is any ambiguity in the Bill of Lading, it is a cardinal
principle in the construction of contracts that the interpretation of obscure
words or stipulations in a contract shall not favor the party who caused the
obscurity. 20 This applies with even greater force in a contract of adhesion
where a contract is already prepared and the other party merely adheres to
it, like the Bill of Lading in this case, which is draw. up by the carrier. 21
On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in
G.R. No. 69044 only)
Petitioner Carrier claims that the Trial Court did not give it sufficient time to
take the depositions of its witnesses in Japan by written interrogatories.
We do not agree. petitioner Carrier was given- full opportunity to present its
evidence but it failed to do so. On this point, the Trial Court found:
xxx xxx xxx
Indeed, since after November 6, 1978, to August 27, 1979,
not to mention the time from June 27, 1978, when its answer
was prepared and filed in Court, until September 26, 1978,
when the pre-trial conference was conducted for the last
time, the defendant had more than nine months to prepare
its evidence. Its belated notice to take deposition on written
interrogatories of its witnesses in Japan, served upon the
plaintiff on August 25th, just two days before the hearing set
for August 27th, knowing fully well that it was its undertaking
on July 11 the that the deposition of the witnesses would be
dispensed with if by next time it had not yet been obtained,
only proves the lack of merit of the defendant's motion for
postponement, for which reason it deserves no sympathy
from the Court in that regard. The defendant has told the
Court since February 16, 1979, that it was going to take the
deposition of its witnesses in Japan. Why did it take until
August 25, 1979, or more than six months, to prepare its
written interrogatories. Only the defendant itself is to blame
for its failure to adduce evidence in support of its defenses.
xxx xxx xxx 22
Petitioner Carrier was afforded ample time to present its side of the case. 23 It
cannot complain now that it was denied due process when the Trial Court
rendered its Decision on the basis of the evidence adduced. What due process
abhors is absolute lack of opportunity to be heard. 24
On the Award of Attorney's Fees:
Petitioner Carrier questions the award of attorney's fees. In both cases,
respondent Court affirmed the award by the Trial Court of attorney's fees of
P35,000.00 in favor of Development Insurance in G.R. No. 69044, and
P5,000.00 in favor of NISSHIN and DOWA in G.R. No. 71478.
Courts being vested with discretion in fixing the amount of attorney's fees, it
is believed that the amount of P5,000.00 would be more reasonable in G.R.
No. 69044. The award of P5,000.00 in G.R. No. 71478 is affirmed.
WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner
Eastern Shipping Lines shall pay the Development Insurance and Surety
Corporation the amount of P256,039 for the twenty-eight (28) packages of
calorized lance pipes, and P71,540 for the seven (7) cases of spare parts, with
interest at the legal rate from the date of the filing of the complaint on June
13, 1978, plus P5,000 as attorney's fees, and the costs.
2) In G.R.No.71478,the judgment is hereby affirmed.
SO ORDERED.
CARRIAGE OF GOODS BY SEA ACT
G.R. No. L-25047 March 18, 1967
DOMINGO ANG, plaintiff-appellant,
vs.
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellee.
-----------------------------
G.R. No. L-25050 March 18, 1967
DOMINGO ANG, plaintiff-appellant,
vs.
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellee.
Juan T. David for plaintiff-appellant.
Ross, Selph & Carrascoso for defendant-appellee.
BENGZON, J. P., J.:
These are two cases separately appealed to the Court of Appeals and certified
to Us by said Court. Since both appeals involve the same parties and issue,
they are decided together herein.
Yau Yue Commercial Bank, Ltd. of Hongkong, also referred to hereafter as Yau
Yue, agreed to sell one boat (50 feet, 30 tons) containing used U.S. Military
Surplus to one Davao Merchandising Corp. for the sum of $8,820.27 (US), and
42 cases (62 sets and 494 pieces) of Hiranos Automatic Cop Change for Cotton
Loom for Calieo to one Herminio Teves for the sum of $18,246.,65 (US),
respectively.
Said agreements were both subject to the following terms and arrangements:
(a) the purchase price should be covered by a bank draft for the
corresponding amount which should be paid by the purchaser in exchange
for the delivery of the corresponding bill of lading to be deposited with a local
bank, the Hongkong & Shanghai Bank of Manila; (b) upon arrival of the
articles in Manila the purchaser would be notified and would have to pay the
amount called for in the corresponding demand draft, after which the bill of
lading would be delivered to said purchaser; and (c) the purchaser would
present said bill of lading to the carrier's agent; American Steamship
Agencies, Inc., which would then issue the correspoding "Permit To Deliver
Imported Articles" to be presented to the Bureau of Custom to obtain the
release of the articles.
Pursuant thereto, on February 17, 1961, Hirahira & Co., Ltd. shipped the 42
cases (62 sets and 494 pieces ) of Hiranos Automatic Cop Change for Cotton
Loom for Calico at Nagoya, aboard the "S.S. CELEBES MARU", for Manila, with
the Kansai Steamship Co., Ltd. of Osaka, Japan, as carrier, of which the
American Steamship Agencies, Inc. is the agent in the Philippines, under a
shipping agreement, Bill of Lading No. NM 1, dated February 17, 1961,
consigned "to order of the shipper", with Herminio G. Teves as the party to
be notified of the arrival of said articles.1äwphï1.ñët
Similarly, on June 3, 1961, the United States Contracting Officer, on behalf of
Nippon Trading Shokai for Nishiman Kaihatsu Co., Ltd. shipped the boat
containing U.S. Military Surplus at Yokohama, Japan, the "KYOJU MARU", with
Sankyo Kiun Kabushiki Kaisha of Japan as carrier, of which the American
Steamship Agencies, Inc. is the agent in the Philippines, under a shipping
agreement, Bill of Lading No. YM-3, dated June 3, 1961, consigned "to the
order of Yau Yue Commercial Bank, Ltd. of Hongkong", with Davao
Merchandising Corporation as the party to be notified of the arrival of said
boat.
The bills of lading were indorsed to the order of Yau Yue and delivered to it
by the respective shippers. Upon receipt thereof, Yan Yue drew demand
drafts together with the bills of lading against Teves and Davao
Merchandising Corp., through the Hongkong & Shanghai Bank.
The shipment for Teves arrived in Manila on March 2, 1961; that of Davao
Merchandising Corp., arrived on June 10, 1961. Accordingly, Hongkong &
Shanghai Bank notified Teves and the Davao Merchandising Corporation, the
"notify parties" under the bills of lading, of the arrival of the goods and
requested payment of the demand drafts representing the purchase prices of
the articles. The Davao Merchandising Corp. and Teves, however, did not pay
the respective drafts, prompting the bank in both cases to make the
corresponding protests. The bank likewise returned the bills of lading and
demand drafts to Yau Yue which indorsed both bills of lading to Domingo Ang.
Teves and Davao Merchandising Corporation, however, were able to obtain
bank guaranties in favor of the American Steamship Agencies., Inc., as
carriers' agent, to the effect that they would surrender the original and
negotiable bills of lading duly indorsed by Yau Yue. And on the strength of
said guaranties, Davao Merchandising Corp. and Teves each succeeded in
securing a "Permit To Deliver Imported Articles" from the carriers' agent,
which they presented to the Bureau of Customs. In turn the latter released to
them the articles covered by the bills of lading.
After being informed by the American Steamship Agencies that the articles
covered by the respective bills of lading were already delivered by them to
the Davao Merchandising Corp. and to Teves, Domingo Ang filed claims with
the carriers' agent for the cost of said articles, interests and damages. The
American Steamship Agencies, Inc., however, refused payment.
Domingo Ang thereafter filed separate complaints in the Court of First
Instance of Manila against the American Steamship Agencies, Inc., for having
allegedly wrongfully delivered and/or converted the goods covered by the
bills of lading belonging to plaintiff Ang, to the damage and prejudice of the
latter. The suit as to the Teves shipment was filed on October 30, 1963; that
referring to the Davao Merchandising Corp.'s shipment was filed on
November 14, 1963.
Subsequently, defendant filed motions to dismiss upon the ground that
plaintiff's causes of action have prescribed under the Carriage of Goods by
Sea Act (Commonwealth Act No. 65), more particularly section 3(6),
paragraph 4, which provides:
In any event, the carrier and the ship shall be discharged from all
liability in respect to loss or damage unless suit is brought within one
year after delivery of the goods or the date when the goods should
have been delivered.
It argued that the cargoes should have been delivered to the person
entitled to the delivery thereof, i.e., plaintiff, on March 2, 1961 (Teves
shipment) and June 10, 1961 (Davao Merchandising Corp. shipment),
the respective dates of the vessels' arrival in Manila, and that even
allowing a reasonable time (even one month) after such arrivals
within which to make delivery, still, the actions commenced on
October 30, 1963 and November 14, 1963. respectively, were filed
beyond the prescribed period of one year.
By order dated February 21, 1964, copy of which was received by plaintiff on
February 28, 1964, the lower court presided over by the Hon. Judge Guillermo
S. Santos, dismissed the action (in re the 42 cases [62 sets and 494 pieces] of
Hiranos Automatic Cop Change for Cotton Loom for Calico) on the ground of
prescription. His motion for reconsideration dated March 20, 1964 having
been denied by the lower court in its order dated June 5, 1964, plaintiff
appealed to the Court of Appeals. This is now L-25050 and refers to the Teves
shipment.
Upon the other hand, by order dated January 6, 1964, the lower court
presided over by the Hon. Jesus P. Morfe (in re the boat [50 feet, 30 tons]
containing used U.S. Military Surplus) denied the motion to dismiss on the
ground that there being no allegation in the complaint as to the date of arrival
of the cargo or the date of which it should have been delivered, the defendant
was relying on facts which are not yet in evidence such as presuming that the
cargo had arrived on the specific date and that the same had been delivered
on another specific date.
Upon a motion for reconsideration filed by the defendant on January 13, 1964
and after the parties submitted their memoranda of authorities and counter-
authorities, respectively, the lower court by an order dated February 20,
1964, reconsidered its prior order of January 6, 1964 and dismissed plaintiff's
action also on the ground of prescription. From this order, defendant
appealed to the Court of Appeals. This is now L-25047 and refers to the Davao
Merchandising Corp. shipment.
At issue is a question purely of law, namely: Did plaintiff-appellant's causes of
action prescribe under Section 3(6), paragraph 4 of the Carriage of Goods by
Sea Act? .
The point has already been resolved by this Court in a case involving the same
parties and parallel facts to those herein involved. In Domingo Ang vs.
American Steamship Agencies, Inc., L-22491, January 27, 1967, We held that
the one-year prescriptive period under Section 3(6), paragraph 4 of the
Carriage of Goods by Sea Act does not apply to cases of misdelivery or
conversion. For convenience, We quote the ruling therein:
The provision of law involved in this case speaks of "loss or damage".
That there was no damage caused to the goods which were delivered
intact to Herminio G. Teves who did not file any notice of damage, is
admitted by both parties in this case. What is to be resolved — in
order to determine the applicability of the prescriptive period of
one year to the case at bar — is whether or not there was 'loss' of
the goods subject matter of the complaint.
Nowhere is "loss" defined in the Carriage of Goods by Sea Act.
Therefore, recourse must be had to the Civil Code which provides in
Article 18 thereof that, "In matters which are governed by the Code
of Commerce and special law, their deficiency shall be supplied by
the provision of this Code."
Article 1189 of the Civil Code defines the word 'loss' in cases where years for breach of a written contract or four years for quasi-delict
condition have been imposed with the intention of suspending the (Arts. 1144[1], 1146, Civil Code). ...
efficacy of an obligation to give. The contract of carriage under
consideration entered into by and between American Steamship The goods covered by the two shipments subject matter of these appealed
Agencies, Inc. and the Yau Yue (which later on endorsed the bill of cases were also delivered to the notify parties, Davao Merchandising
lading covering the shipment to plaintiff herein Domingo Ang), is one Corporation and Herminio Teves, despite the latter's inability to present the
involving an obligation to give or to deliver the goods "to the order of proper bills of lading and without the knowledge and consent of plaintiff-
shipper" that is, upon the presentation and surrender of the bill of appellant Domingo Ang to whom were endorsed said bills of lading. There is
lading. This being so, said article can be applied to the present therefore likewise misdelivery not nondelivery. Finally, the recipients of said
controversy, more specifically paragraph 2 thereof which provides goods did not file any complaint with defendant regarding any damage to the
that, "... it is understood that a thing is lost when it perishes, or goes same. No loss nor damage is therefore involved in these cases. And thus the
out of commerce, or disappears in such a way that its existence is prescriptive period under Section 3(6), paragraph 4 of the Carriage of Goods
unknown or it cannot be recovered." by Sea Act does not apply. The applicable prescriptive period is that found in
As defined in the Civil Code and as applied to Section 3(6), paragraph the Civil Code, namely, either ten years for breach of a written contract or
4 of the Carriage of Goods by Sea Act, 'loss' contemplates merely a four years for quasi-delict (Arts. 1144[1] and 1146). Since the complaints in
situation where no delivery at all was made by the shipper of the these appealed cases were filed two years and five months (as to Davao
goods because the same had perished, gone out of commerce, or Merchandising Corp. shipment) and 2 years and 8 months (as to Teves
disappeared in much a way that their existence is unknown or they shipment), from the arrival of the two shipments, it is clear that the causes of
cannot be recovered. It does not include a situation where there was action have not yet prescribed.
indeed delivery — but delivery to the wrong person, or a
misdelivery, as alleged fir the complaint in this case. Wherefore, the orders appealed from dismissing plaintiff's complaints in
xxx xxx xxx these two cases on the ground of prescription are hereby reversed and set
The point that matters here is that the situation is either delivery or aside; let said cases be remanded to the respective court a quo for further
misdelivery, but not non-delivery. Thus, the goods were either rightly proceedings. So ordered.
delivered or misdelivered, but they were not lost. There being no loss
or damage to the goods, the aforequoted provision of the Carriage of
Goods by Sea Act stating that "In any event, the carrier and the ship
shall be discharged from all liability in respect of loss or damage
unless it is brought within one year after delivery of the goods or the
date of when the goods should have been delivered," does not apply.
The reason is not difficult to see. Said one-year period of limitation is
designed to meet the exigencies of maritime hazards. In a case where
the goods shipped were neither lost nor damaged in transit but were,
on the contrary, delivered in port to someone who claimed to be
entitled thereto, the situation is different, and the special need for
the short period of limitation in case of loss or damage caused by
maritime perils does not obtain.
It follows that for suits predicated not upon loss or damage but on
alleged misdelivery (or conversion) of the goods, the applicable rule
on prescription is that found in the Civil Code, namely, either ten
CARRIAGE OF GOODS BY SEA ACT
G.R. No. L-17730 September 29, 1962
F. H. STEVENS & CO., INC., plaintiff-appellant,
vs.
NORDDEUSCHER LLOYD, defendant-appellee.
CONCEPCION, J.:
This is an appeal from an order granting defendant's motion to dismiss and,
accordingly, dismissing the case without any pronouncement as to costs.
Plaintiff commenced this action in the Court of First Instance of Manila on June 24,
1960. It alleged in the complaint that on March 28, 1959, it had shipped from
Hamburg to Manila, aboard the "MS SCHWABENSTEIN", a vessel of defendant
Norddeuscher Lloyd, 2,000 pieces of prismatical thermometers valued at $650; that
on May 15, 1959, said vessel arrived at Manila; that on May 21, 1959, the master of
said vessel notified the plaintiff, thru its broker, of the delivery of said goods; that,
upon examination of the case containing the same, it turned out that 1,154 pieces of
said thermometers valued at $342.74, were missing and/or destroyed; that plaintiff
immediately filed the corresponding notice of loss and/or short delivery, followed by
the corresponding notice and formal claim for loss and/or short delivery; that,
despite several demands, defendant had refused and failed to pay said sum of
$342.74; that, as a consequence, plaintiff had, also, incurred damages in the sums of
P1,000, as attorney's fees, and P664.70, as unrealized profits; and that an action
instituted in the Municipal Court of Manila on April 27, 1960 — seemingly, for the
recovery of the value of said thermometers and the amount of said — damages
was dismissed by said court on June 13, 1960, without any trial on the merits, upon
the ground of lack of jurisdiction over the subject-matter of the case, inasmuch as
the same involved the exercise of admiralty and maritime jurisdiction. Plaintiff prayed
for judgment for said sums of $342.74, P1,000 and P664.70, plus costs.
On July 8, 1960, defendant moved to dismiss the complaint upon the ground that
plaintiff's causes of action had prescribed, it having been filed on June 24, 1960, or
more than a year from May 21, 1959, when plaintiff was notified of the delivery of
the case containing the thermometers in question. This motion having been granted
and the complaint dismissed, plaintiff interposed this appeal, maintaining that the
period of one (1) year prescribed in Commonwealth Act No. 65, in relation to Carriage
of Goods by Sea Act — within which the liability of carriers, based upon a contract
of carriage goods by sea, may be enforced by suit — was suspended by the
commencement of the first action in the municipal court, on April 27, 1960; that
the running of said period was resumed or continued on June 13, 1960, when said
action was dismissed; and that, excluding said period from April 27, 1960 to June 13,
1960, or forty-seven (47) days, less than one (1) year has elapsed from May 21, 1959
to June 24, 1960, when this case was filed in the court of first instance. In support of
this pretense, plaintiff invokes Article 1155 of the Civil Code of the Philipines, reading:
The prescription of actions is interrupted when they filed before the court, when
there is a written extrajudicial command by the creditors, and when there is any
written acknowledged judgment of the debt by the debtor.
Upon mature deliberation, we are of the opinion, and so hold, that the order
appealed from should be reversed, not only because of the operation of said Article
1155 of our Civil Code, but, also, in view of the provisions section 49 of Act No. 190,
pursuant to which:
If, in an action commenced, in due time, a judgment for the plaintiff be reversed, or
if the plaintiff fail otherwise than upon the merits, and the time limited for the
commencement of such action has, at the date of such reversal or failure, expired,
the plaintiff, or, if he die and the cause of action survive, his representatives may
commence a new action within one year after such date, and this provision shall
apply to any claim asserted in any pleading by a defendant.
The action commenced by the plaintiff in the Municipal Court of Manila, on April 27,
1960, was dismissed June 13, 1960, or over twenty (20) days after the expiration of
the period of one (1) year, beginning from May 21, 1959, within which plaintiff's
action could be brought pursuant to Commonwealth Act No. 65, in relation to the
Carriage of Goods by Sea Act. Under said section of Act No. 190, the period within
which plaintiff could initiate the present case was renewed, therefore, for another
year, beginning from June 14, 1960 (Tolentino Vitug, 39 Phil., 126; Smith vs. McNeal,
100 U.S. 426, 27 L. ed. 986). The case at bar was commenced on June 24, 1960, or
within the period last mentioned.
The cases of Oriental Commercial Co. vs. Jureidini (71 Phil., 25) and Conspecto vs.
Fruto (31 Phil., 144), in which it was held that:
. . . Cuando se entabia una accion dentro del plazo de prescripcion y se desiste de ella despues, o se
sobresee sin condiciones, por una razon u otra, no hace que la accion que se entable mas tarde pero ya
fuera del periodo de prescripcion, se pueda considerar como presentada detro de dicho periodo porque
quiere contrase con la accion entablada con anterioridad. La falta de gestion de la recurrente por cuya
causa se desestimaron sus demandas segunda y tercera, no puede interpretarse sino como
una renuncia de su parte y, al ejercitar su ultima accion no se ha colocado en la misma situacion en que
antes se hallaba al ejercitar sus tres anteriores acciones. Este es el mismo criterio que expresamos cuando
se nos presents una cuestion aniloga en la causa de Conspecto contra Fruto, 31 Jur. Fil 155. (EmphasiS
supplied.)1awphîl.nèt
are not in point, for the dismissal of the herein plaintiff's complaint in the municipal
court was not due to its desistance or voluntary abandonment.
Insofar as inconsistent with the conclusion we have thus reached, the view adopted
in Chua Kuy vs. Everett Steamship Corp., L-5534 (May 27, 1953) and Yek Tong Lin Fire
& Marine Insurance Co. vs. American President Lines, Inc., L-11081 (April 30, 1958)
should be, as it is hereby, modified accordingly.
WHEREFORE, the order appealed from is reversed and this case remanded to the
lower court for further proceedings, with costs of this instance against defendant
Norddeuscher Lloyd. It is so ordered.
CARRIAGE OF GOODS BY SEA ACT
G.R. No. 187701 July 23, 2014
PHILAM INSURANCE COMPANY, INC. (now CHARTIS PHILIPPINES
INSURANCE, INC.*), Petitioner,
vs.
HEUNG-A SHIPPING CORPORATION and WALLEM PHILIPPINES SHIPPING,
INC., Respondents.
x-----------------------x
G.R. No. 187812
HEUNG-A SHIPPING CORPORATION and WALLEM PHILIPPINES SHIPPING,
INC., Petitioners,
vs.
PHILAM INSURANCE COMPANY, INC. (now CHARTIS PHILIPPINES
INSURANCE, INC.), Respondent.
DECISION
REYES, J.:
At bar are consolidated petitions for review on certiorari1 under Rule 45 of
the Rules of Court assailing the Decision2dated January 30, 2009 of the Court
of Appeals (CA) in CA-G.R. CV No. 89482 affirming with modifications the
Decision3 dated February 26, 2007 of the Regional Trial Court (RTC) of Makati
City, Branch 148, in Civil Case No. 01-889.
The Factual Antecedents
On December 19, 2000, Novartis Consumer Health Philippines, Inc.
(NOVARTIS) imported from Jinsuk Trading Co. Ltd., (JINSUK) in South Korea,
19 pallets of 200 rolls of Ovaltine Power 18 Glaminated plastic packaging
material.
In order to ship the goods to the Philippines, JINSUK engaged the services of
Protop Shipping Corporation (PROTOP), a freight forwarder likewise based in
South Korea, to forward the goods to their consignee, NOVARTIS.
Based on Bill of Lading No. PROTAS 200387 issued by PROTOP, the cargo was
on freight prepaid basis and on "shipper’s load and count" which means
that the "container [was] packed with cargo by one shipper where the
quantity, description and condition of the cargo is the sole responsibility
of the shipper."4 Likewise stated in the bill of lading is the name Sagawa
Express Phils., Inc., (SAGAWA) designated as the entity in the Philippines
which will obtain the delivery contract.
PROTOP shipped the cargo through Dongnama Shipping Co. Ltd.
(DONGNAMA) which in turn loaded the same on M/V Heung-A Bangkok V-
019 owned and operated by Heung-A Shipping Corporation, (HEUNG-A), a
Korean corporation, pursuant to a ‘slot charter agreement’ whereby a
space in the latter’s vessel was reserved for the exclusive use of the
former. Wallem Philippines Shipping, Inc. (WALLEM) is the ship agent
of HEUNG-A in the Philippines. NOVARTIS insured the shipment with
Philam Insurance Company, Inc. (PHILAM, now Chartis Philippines
Insurance, Inc.) under All Risk Marine Open Insurance Policy No. MOP-
0801011828 against all loss, damage, liability, or expense before, during
transit and even after the discharge of the shipment from the carrying vessel
until its complete delivery to the consignee’s premises. The vessel arrived
at the port ofManila, South Harbor, on December 27, 2000 and the
subject shipment contained in Sea Van Container No. DNAU 420280-
9 was discharged without exception into the possession, custody and
care of Asian Terminals, Inc. (ATI) as the customs arrastre operator.
The shipment was thereafter withdrawn on January 4, 2001, by NOVARTIS’
appointed broker, Stephanie Customs Brokerage Corporation
(STEPHANIE) from ATI’s container yard.
The shipment reached NOVARTIS’ premises on January 5, 2001 and was
thereupon inspected by the company’s Senior Laboratory Technician,
Annie Rose Caparoso (Caparoso).5
Upon initial inspection, Caparoso found the container van locked with its load
intact. After opening the same, she inspected its contents and discovered that
the boxes of the shipment were wet and damp. The boxes on one side of the
van were in disarray while others were opened or damaged due to the
dampness. Caparoso further observed that parts of the container van were
damaged and rusty. There were also water droplets on the walls and the floor
was wet. Since the damaged packaging materials might contaminate the
product they were meant to hold, Caparoso rejected the entire shipment.
Renato Layug and Mario Chin, duly certified adjusters of the Manila Adjusters
and Surveyors Company wereforthwith hailed to inspect and conduct a
survey of the shipment.6 Their Certificate of Survey7 dated January 17, 2001
yielded results similar to the observations of Caparoso, thus:
[T]he sea van panels/sidings and roofing were noted with varying degrees of
indentations and partly corroded/rusty. Internally, water bead clung along
the roofs from rear to front section. The mid section dented/sagged with
affected area was noted withminutes hole evidently due to
thinning/corroded rusty metal plates. The shipment was noted with several
palletized cartons already in collapsed condition due to wetting. The van’s
entire floor length was also observed wet.8
All 17 pallets of the 184 cartons/rolls contained in the sea van were found
wet/water damaged. Sixteen (16)cartons/rolls supposedly contained in 2
pallets were unaccounted for although the surveyors remarked that this may
be due to short shipment by the supplier considering that the sea van was
fully loaded and can no longer accommodate the said unaccounted items.
The survey report further stated that the "wetting sustained by the shipment
may have reasonably be attributed to the water seepage that gain entry into
the sea van container damageroofs (minutes hole) during transit
period[sic]."9
Samples from the wet packing materials/boxes were submitted to the
chemist of Precision Analytical Services, Inc. (PRECISION), Virgin Hernandez
(Hernandez), and per Laboratory Report No. 042-07 dated January 16, 2001,
the cause of wetting in the carton boxes and kraft paper/lining materials as
well as the aluminum foil laminated plastic packaging material, was salt
water.10
Aggrieved, NOVARTIS demanded indemnification for the lost/damaged
shipment from PROTOP, SAGAWA, ATI and STEPHANIE but was denied.
Insurance claims were, thus, filed with PHILAM which paid the insured value
of the shipment inthe adjusted amount of One Million Nine Hundred Four
Thousand Six Hundred Thirteen Pesos and Twenty Centavos
(₱1,904,613.20). Claiming that after such payment, it was subrogated
to all the rights and claims of NOVARTIS against the parties liable for
the lost/damaged shipment, PHILAM filed on June 4, 2001, a complaint
for damages against PROTOP, as the issuer of Bill of Lading No. PROTAS
200387, its ship agent in the Philippines, SAGAWA, consignee, ATI and the
broker, STEPHANIE.
On October 12, 2001, PHILAM sent a demand letter to WALLEM for
reimbursement of the insurance claims paid to NOVARTIS.11 When WALLEM
ignored the demand, PHILAM impleaded it as additional defendant in an
Amended Complaint duly admitted by the trial court on October 19, 2001.12
On December 11, 2001, PHILAM filed a Motion to Admit Second Amended
Complaint this time designating PROTOP as the owner/operator of M/V
Heung-A Bangkok V-019 and adding HEUNG-A as party defendant for being
the registered owner of the vessel.13 The motion was granted and the second
amended complaint was admitted by the trial court on December 14, 2001.14
PROTOP, SAGAWA, ATI, STEPHANIE, WALLEM and HEUNG-A denied liability
for the lost/damaged shipment.
SAGAWA refuted the allegation that it is the ship agent of PROTOP and argued
that a ship agent represents the owner of the vessel and not a mere freight
forwarder like PROTOP. SAGAWA averred that its only role with respect to
the shipment was to inform NOVARTIS of its arrival in the Philippines and to
facilitate the surrender of the original bill of lading issued by PROTOP.
SAGAWA further remarked that it was deprived an opportunity to examine
and investigate the nature and extent of the damage while the matter was
still fresh so as tosafeguard itself from false/fraudulent claims because
NOVARTIS failed totimely give notice about the loss/damage.15
SAGAWA admitted that it has a non-exclusive agency agreement with
PROTOP to serve as the latter’s delivery contact person in the Philippines
with respect to the subject shipment. SAGAWA is also a freight
forwarding company and that PROTOPwas not charged any fee for the
services rendered by SAGAWA with respect to the subject shipment and
instead the latter was given US$10 as commission.16 For having been dragged
into court on a baseless cause, SAGAWA counterclaimed for damages in the
form of attorney’s fees.
ATI likewise interposed a counterclaim for damages against PHILAM for its
allegedly baseless complaint. ATI averred that it exercised due care and
diligence in handling the subject container. Also, NOVARTIS, through PHILAM,
is now barred from filing any claim for indemnification because the latter
failed to file the same within 15 days from receipt of the
shipment.17 Meanwhile, STEPHANIE asserted that its only role with respect to
the shipment was its physical retrieval from ATI and thereafter its delivery to
NOVARTIS. That entire time, the sealwas intact and not broken. Also, based
on the Certificate of Survey, the damage to the shipment was due to salt
water which means that it could not have occurred while STEPHANIE was in
possession thereof during its delivery from ATI’s container yard to
NOVARTIS’ premises. STEPHANIE counterclaimed for moral damages
and attorney’s fees.18
WALLEM alleged that the damageand shortages in the shipment were the
responsibility of the shipper, JINSUK, because it was taken on board on a
"shipper’s load and count" basis which means that it was the shipper
that packed, contained and stuffed the shipment in the container van
without the carrier’s participation. The container van was already sealed
when it was loadedon the vessel and hence, the carrier was in no position
to verify the condition and other particulars of the shipment.
WALLEM also asserted that the shipment was opened long after it was
discharged from the vessel and that WALLEM or HEUNG-A were not present
during the inspection, examination and survey.
WALLEM pointed the blame to PROTOP because its obligation to the shipper
as freight forwarder carried the concomitant responsibility of ensuring the
shipment’s safety from the port of loading until the final place of delivery.
WALLEM claimed to haveexercised due care and diligence in handling the
shipment.
In the alternative, WALLEM averred that any liability which may be imputed
to it is limited only to US$8,500.00 pursuant to the Carriage of Goods by Sea
Act (COGSA).19
HEUNG-A argued that it is not the carrier insofar as NOVARTIS is concerned.
The carrier was either PROTOP, a freight forwarder considered as a non-
vessel operating common carrier or DONGNAMA which provided the
container van to PROTOP.20 HEUNG-A denied being the carrier of the
subjectshipment and asserted that its only obligation was to provide
DONGNAMA a space on board M/V Heung-A Bangkok V-019.
PROTOP failed to file an answer to the complaint despite having been
effectively served with alias summons. It was declared in default in the RTC
Order dated June 6, 2002.21
Ruling of the RTC
In a Decision22 dated February 26, 2007, the RTC ruled that the damage to the
shipment occurred onboard the vessel while in transit from Korea to the
Philippines.
HEUNG-A was adjudged as the common carrier of the subject shipment by
virtue of the admissions of WALLEM’s witness, Ronald Gonzales
(Gonzales) that despite the slot charter agreement with DONGNAMA, it
was still the obligation of HEUNG-A to transport the cargo from Busan, Korea
to Manila and thus any damage to the shipment is the responsibility of the
carrier to the consignee.
The RTC further observed that HEUNG-A failed to present evidence showing
that it exercised the diligence required of a common carrier in ensuring the
safety of the shipment.
The RTC discounted the slot charter agreement between HEUNG-A and
DONGNAMA, and held that it did not bind the consignee who was not a party
thereto. Further, it was HEUNG-A’s duty to ensure that the container van
was in good condition by taking an initiative to state in its contract and
demand from the owner of the container van that it should be in a good
condition all the time. Such initiative cannot be shifted to the shipper
because it is in no position to demand the same from the owner of the
container van.
WALLEM was held liable as HEUNG-A’s ship agent in the Philippines while
PROTOP was adjudged liable because the damage sustained by the
shipment was due to the bad condition of the container van. Also, based on
the statement at the backof the bill of lading, it assumed responsibility for
loss and damage as freight forwarder, viz:
6.1 The responsibility of the Freight Forwarder for the goods under these
conditions covers the period from the time the Freight Forwarder has taken
the goods in his charge to the time of the delivery.
6.2 The Freight Forwarde[r] shall beliable for loss or damage to the goods as
well as for delay in delivery if the occurrence which caused the loss, damage,
delay in delivery took place while the goods were in his charge as defined in
clause 2.1.a unless the Freight Forwarder proves that no fault or neglect of
his own servants or agents or any other person referred to in Clause 2.2 has
caused or contributed to such loss, damage or delay. However, the Freight
Forwarder shall only be liable for loss following from delay in delivery if the
Consignor has made a declaration of interest in timely delivery which has
been accepted by the Freight Forwarder and stated in this FBL.23
PHILAM was declared to havebeen validly subrogated in NOVARTIS’ stead
and thus entitled to recover the insurance claims it paid to the latter.
ATI and STEPHANIE were exonerated from any liability. SAGAWA was likewise
adjudged not liable for the loss/damage to the shipment by virtue of the
phrase "Shipper’s Load and Count" reflected in the bill of lading issued by
PROTOP. Since the container van was packed under the sole responsibility of
the shipper in Korea, SAGAWA, which is based in the Philippines, had no
chance to check if the contents were in good condition or not. The RTC
concluded that SAGAWA cannot be expected to observe the diligence or care
required of a carrier or ship agent. SAGAWA, ATI and STEPHANIE’s
counterclaims for attorney’s fees were granted and PHILAM was
ordered to pay the same for having been filed a ‘shotgun case’ against
them. Accordingly, the dispositive portion of the RTC decision read:
WHEREFORE, premises considered, judgment is hereby rendered declaring
defendants PROTOP SHIPPING CORPORATION, HEUNG-A SHIPPING
CORPORATION and WALLEM PHILIPPINES SHIPPING, INC. solidarily liable to
pay x x x PHILAM INSURANCE COMPANY, INC. the following amounts:
1. [P]1,904,613.20 plus interest of 12% per annum from December
26, 2001 (date of service of summons to defendant Heung-A) until
full payment;
2. [P]350,000.00 as attorney’s fees; and 3. Cost of suit.
With regards to the counter claims, x x x PHILAM INSURANCE COMPANY, INC.
is hereby ordered to pay defendants SAGAWA EXPRESS PHILIPPINES, INC.,
ASIAN TERMINALS, INC., and STEPHANIE CUSTOMS BROKERAGE
CORPORATION the amount of [P]100,000.00 each as attorney’s fees.
SO ORDERED.24
Ruling of the CA
An appeal to the CA was interposed by PHILAM, WALLEM and HEUNG-A. In a
Decision25 dated January 30, 2009, the CA agreed with the RTC that PROTOP,
HEUNG-A and WALLEM are liable for the damaged shipment. The fact that
HEUNG-A was not a party to the bill of lading did not negate the existence of
a contract of carriage between HEUNG-A and/or WALLEM and NOVARTIS. A
bill of lading is not indispensable for the creation of a contract of carriage. By
agreeing to transport the goods contained in the sea van providedby
DONGNAMA, HEUNG-A impliedly entered into a contract of carriage with
NOVARTIS with whom the goods were consigned. Hence, it assumed the
obligations of a common carrier to observe extraordinary diligence in the
vigilance over the goods transported by it. Further the Slot Charter
Agreement did not change HEUNG-A’s character as a common carrier.
Moreover, the proximate cause ofthe damage was the failure of HEUNG-A to
inspect and examine the actual condition of the sea van before loading it on
the vessel. Also, propermeasures in handling and stowage should have been
adopted to prevent seepage of sea water into the sea van.
The CA rejected WALLEM and HEUNG-A’s argument that NOVARTIS failed
to comply with Article 366 of the Code of Commerce requiring that a
claim must be made against the carrier within 24 hours from receipt of the
merchandise because such provision applies only to inter-island shipments
within the Philippines.
The CA limited the liability of PROTOP, WALLEM and HEUNG-A to
US$8,500.00 pursuant to the liability limitation under the COGSA since the
shipper failed to declare the value of the subject cargo in the bill of lading and
since they could not be made answerable for the two (2) unaccounted pallets
because the shipment was on a "shipper’s load, count and seal" basis.
The attorney’s fees awarded to SAGAWA, ATI and STEPHANIE were
deleted because it was not shown that PHILAM was motivated by
malice and bad faith in impleading them as defendants. Thus, the CA
decision was disposed as follows:
WHEREFORE, premises considered, the appealed Decision is hereby
AFFIRMED with MODIFICATION.Defendants PROTOP SHIPPING
CORPORATION, HEUNG-A SHIPPING CORPORATION [and] WALLEM
PHILIPPINES SHIPPING,INC.’s solidary liability to PHILAM INSURANCE
COMPANY, INC. is reduced to $8,500.00 plus interest per annum from26
December 2001 (date ofservice of summons to defendant Heung-A) until full
payment. The award of attorney’s fees in the amount of One Hundred
Thousand Pesos ([P]100,000.[00]) each to SAGAWA EXPRESS
PHILIPPINES, INC., ASIAN TERMINALS, INC. and STEPHANIE CUSTOMS
BROKERAGE is hereby DELETED.SO ORDERED.26
The foregoing judgment was reiterated in the CA Resolution27 dated May 8,
2009 which denied the motions for reconsideration filed by PHILAM,
WALLEM and HEUNG-A.
PHILAM thereafter filed a petition for review before the Court docketed as
G.R. No. 187701. WALLEM and HEUNG-A followed suit and their petition was
docketed as G.R. No. 187812. Considering that both petitions involved similar
parties and issue, emanated from the same Civil Case No. 01-889 and assailed
the same CA judgment, they were ordered consolidated in a
Resolution28 dated January 13, 2010.
In G.R. No. 187701, PHILAM raised the following grounds:
THE HONORABLE [CA] COMMITTED SERIOUS ERROR WHEN IT RULED IN ITS
DECISION OF 30 JANUARY 2009 THAT [HEUNG-A and WALLEM] HAVE THE
RIGHT TO LIMIT THEIR LIABILITY UNDER THE PACKAGE LIMITATION OF
LIABILITY OF SECTION 4(5) OF THE CARRIAGE OF GOODS BY SEA ACT, 1924, IN
VIEW OF ITS OBSERVATION THAT [NOWHERE] IN THE BILL OF LADING DID THE
SHIPPER DECLARE THE VALUE OF THE SUBJECT CARGO;
THE HONORABLE [CA] COMMITTED SERIOUS ERROR WHEN IT COMPLETELY
DISREGARDED THE FUNDAMENTAL BREACHES OF [HEUNG-A and WALLEM]
OF [THEIR] OBLIGATIONS AND RESPONSIBILITIES UNDER THE CONTRACT OF
CARRIAGE AND LAW OF THE CASE AS LEGAL GROUNDS TO PRECLUDE ITS
AVAILMENT OF THE PACKAGE LIMITATION OF LIABILITY UNDER SECTION 4(5)
OF THE CARRIAGE OF GOODS BY SEA ACT, 1924.29
In G.R. No. 187812, HEUNG-A and WALLEM argued that:
THE [CA] COMMITTED A SERIOUS ERROR OF LAW IN RULING THAT THE CODE
OFCOMMERCE, SPECIFICALLY ARTICLE 366 THEREOF, DOES NOT APPLY IN
THIS CASE[;]
THE [CA] COMMITTED A SERIOUS ERROR OF LAW IN RULING THAT THE SO-
CALLED "PARAMOUNT CLAUSE" IN THE BILL OF LADING, WHICH PROVIDED
THAT "COGSA" SHALL GOVERN THE TRANSACTION, RESULTED IN THE
EXCLUSION OR INAPPLICABILITY OF THE CODE OF COMMERCE[;]
THE [CA] COMMITTED A SERIOUS ERROR OF LAW IN NOT RULING THAT
[PHILAM] HAS NO RIGHT OF ACTION AGAINST [HEUNG-A and WALLEM]
INSOFAR AS DAMAGE TO CARGO IS CONCERNED IN VIEW OF THE FACT THAT
NO TIMELY CLAIM WAS FILED PURSUANT TO ARTICLE 366 OF THE CODE OF
COMMERCE OR THE PROVISIONS OF THE BILL OF LADING NO.DNALGOBUM
005019[;]
THE [CA] GRAVELY ABUSED ITS DISCRETION AMOUNTING TO EXCESS OR LACK
OF JURISDICTION IN FINDING THAT THE CONTAINERIZED CARGO WAS
DAMAGED WHILE IN THE POSSESSION OR CUSTODY OF THE VESSEL "HEUNG-
A BANGKOK".30
Issues
The arguments proffered by the parties can be summed up into the following
issues: (1) Whether the shipment sustained damage while in the possession
and custody of HEUNG-A, and if so, whether HEUNG-A’s liability can be
limited to US$500 per package pursuant tothe COGSA; (2) Whether or
not NOVARTIS/PHILAM failed to file a timely claim against HEUNG-A
and/or WALLEM.
Ruling of the Court
It must be stressed that the question on whether the subject shipment
sustained damaged while in the possession and custody of HEUNG-A is a
factual matter which has already beendetermined by the RTC and the CA. The
courts a quowere uniform in finding that the goods inside the container van
were damaged by sea water whilein transit on board HEUNG-A’s vessel.
Being a factual question, it is notreviewable in the herein petition filed under
Rule 45 of the Rules of Court. It isnot the Court’s duty to evaluate and weigh
the evidence all over again as such function is conceded to be within
the expertise of the trial court whose findings, when supported by
substantial evidence on record and affirmed by the CA, are regarded
with respect, if not binding effect, by this Court.31
There are certain instances, however, when the Court is compelled to deviate
from this rule, dismantle the factual findings of the courts a quoand conduct
a probe into the factual questions at issue. These circumstances are: (1) the
inference made ismanifestly mistaken, absurd or impossible; (2) there is
grave abuse of discretion; (3) the findings are grounded entirely on
speculations, surmises or conjectures; (4) the judgment of the CA is based on
misapprehension of facts; (5) the CA, in making its findings, went beyond the
issues of the case and the same is contrary to the admissions of both
appellant and appellee; (6) the findings of fact are conclusions without
citation of specific evidence on which theyare based; (7) the CA manifestly
overlooked certain relevant facts not disputed by the parties and which, if
properly considered, would justify a different conclusion; and (8) the findings
of fact of the CA are premised on the absence ofevidence and are
contradicted by the evidence on record.32
None of the foregoing instances is extant from records of the present case.
Instead, the Court finds that the factual findings of the courts a quo are
supported by evidence on record.
The uncontested results of the inspection survey conducted by Manila
Adjusters Surveyors Company showed that sea water seeped into the
panels/sidings and roofing of the container van. This was confirmed by the
examination conducted by Hernandez, the chemist of PRECISION, on samples
from the cartons, boxes, aluminum foil and laminated plastic packaging
materials. Based on the laboratory examination results, the contents of the
van were drenched by sea water, an element which is highly conspicuous in
the high seas. It can thus be reasonably concluded that negligence occurred
while the container van was in transit, in HEUNG-A’s possession, control and
custody as the carrier.
Although the container van had defects, they were not, however, so severe
as to accommodate heavy saturation of sea water. The holes were tiny and
the rusty portions did not cause gaps or tearing. Hence, the van was still in a
suitable condition to hold the goods and protect them from natural weather
elements or even the normal flutter of waves in the seas.
The scale of the damage sustained by the cargo inside the van could have
been only caused by large volume of sea water since not a single package
inside was spared. Aside from the defective condition of the van, some other
circumstance or occurrence contributed to the damages sustained by the
shipment. Since the presence of sea water is highly concentrated in the high
seas and considering HEUNG-A’s failure to demonstrate how it exercised
due diligence in handling and preserving the container van while in
transit, it is liable for the damages sustained thereby.
As the carrier of the subject shipment, HEUNG-A was bound to exercise
extraordinary diligence in conveying the same and its slot charter agreement
with DONGNAMA did not divest it of such characterization nor relieve it of
any accountability for the shipment.
Based on the testimony of Gonzales,33 WALLEM’s employee and witness,
the charter party between HEUNG-A and DONGNAMA was a contract
of affreightment and not a bare boat or demise charter, viz:
Q: Now, the space charter that you are mentioning is not either a bareboat
or a demise?
A: Yes, sir.
Q: Okay. So in other words, that space charter party is only to allow the
shipper, Dongnama, to load its cargo for a certain specified space?
A: Yes, sir.34
A charter party has been defined in Planters Products, Inc. v. Court of
Appeals35 as:
[A] contract by which an entire ship, orsome principal part thereof, is let by
the owner to another person for a specified time or use; a contract of
affreightment by which the owner of a ship or other vessel lets the whole or
a part of her to a merchant or other person for the conveyance of goods, on
a particular voyage, in consideration of the payment of freight. x x
x.36 (Citations omitted)
A charter party has two types. First, it could be a contract of affreightment
whereby the use of shipping space on vessels is leased in part or as a whole,
to carry goods for others. The charter-party provides for the hire of vessel
only, either for a determinate period of time (time charter) or for a single or
consecutive voyage (voyage charter). The shipowner supplies the ship’s
stores, pay for the wages ofthe master and the crew, and defray the
expenses for the maintenance of the ship.37 The voyage remains under the
responsibility of the carrier and it is answerable for the loss of goods received
for transportation. The charterer is free from liability to third persons in
respect of the ship.38
Second, charter by demise or bareboat charter under which the whole vessel
is let to the charterer with a transfer to him of its entire command and
possession and consequent control over its navigation, including the master
and the crew, who are his servants.39 The charterer mans the vessel with his
own people and becomes, in effect, the owner for the voyage or service
stipulated and hence liable for damages or loss sustained by the goods
transported.40
Clearly then, despite its contract of affreightment with DONGNAMA, HEUNG-
A remained responsible as the carrier, hence, answerable for the damages
incurred by the goods received for transportation. "[C]ommon carriers, from
the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligenceand vigilance with respect to the safety of the
goods and the passengers they transport. Thus, common carriers are required
to render service with the greatest skill and foresight and ‘to use all
reasonable means to ascertain the nature and characteristics of the
goods tendered for shipment, and toexercise due care in the handling
and stowage, including such methods as their nature requires.’"41
"[C]ommon carriers, as a general rule, are presumed to have been at fault or
negligent if the goods they transported deteriorated or got lost or destroyed.
That is, unless they provethat they exercised extraordinary diligence in
transporting the goods. Inorder to avoid responsibility for any loss or damage,
therefore, they have the burden of proving that they observed such
diligence."42 Further, under Article 1742 of the Civil Code, even if the loss,
destruction, or deterioration of the goods should be caused by the faulty
nature of the containers, the common carrier must exercise due diligence to
forestall or lessen the loss.
Here, HEUNG-A failed to rebut this prima faciepresumption when it failed to
give adequate explanation as to how the shipment inside the container van
was handled, stored and preserved to forestall or prevent any damage or loss
while the same was inits possession, custody and control.
PROTOP is solidarily liable with HEUNG-A for the lost/damaged shipment in
view of the bill of lading the former issued to NOVARTIS. "A bill of lading is a
written acknowledgement of the receipt of goods and an agreement to
transport and to deliver them at a specified place to a person named or on
his or her order. It operates both as a receipt and as a contract. It is a receipt
for the goods shipped and a contract to transport and deliver the same as
therein stipulated."43 PROTOP breached its contract with NOVARTIS when it
failed to deliver the goods in the same quantity, quality and description as
stated in Bill of Lading No. PROTAS 200387.
The CA did not err in applying the provisions of the COGSA specifically, the
rule on Package Liability Limitation.
Under Article 1753 of the Civil Code, the law of the country to which the
goods are to be transported shall govern the liability of the common carrier
for their loss, destruction or deterioration. Since the subject shipment was
being transported from South Korea to the Philippines, the Civil Code
provisions shall apply. In all mattersnot regulated by the Civil Code, the rights
and obligations of common carriers shall be governed by the Code of
Commerce and by special laws,44 such as the COGSA.
While the Civil Code contains provisions making the common carrier liable for
loss/damage to the goods transported, it failed to outline the manner of
determining the amount of suchliability. Article372 of the Code of Commerce
fills in this gap, thus:
Article 372. The value of the goods which the carrier must pay in cases if loss
or misplacement shall be determined in accordance with that declared in the
bill of lading, the shipper not being allowed to present proof that among the
goods declared therein there were articles of greater value and money.
Horses, vehicles, vessels, equipment and all other principal and accessory
means of transportation shall be especially bound infavor of the shipper,
although with respect to railroads said liability shall be subordinated to the
provisions of the laws of concession with respect to the property, and to what
this Code established as to the manner and form of effecting seizures and
attachments against said companies. (Emphasis ours)
In case, however, of the shipper’s failure to declare the value of the goods
in the bill of lading, Section 4, paragraph 5 of the COGSA provides:
Neither the carrier nor the ship shall in any event be or become liable for any
loss or damage to or in connection with the transportation of goods in an
amount exceeding $500 per package lawful money of the United States, or in
case of goods not shipped in packages, per customary freight unit, or the
equivalent of that sum in other currency, unless the nature and value of such
goods have been declared by the shipper before shipment and inserted in the
bill of lading. This declaration, if embodied in the bill of lading shall be prima
facieevidence, but shall be conclusive on the carrier.
Hence, when there is a loss/damage to goods covered by contracts of carriage
from a foreign port to a Philippine port and in the absence a shipper’s
declaration of the value of the goods in the bill of lading, as in the
present case, the foregoing provisions of the COGSA shall apply. The
CA, therefore, did not err in ruling that HEUNG-A, WALLEM and
PROTOP’s liability is limited to $500 per package or pallet.45
The Court likewise affirms the CA in pronouncing HEUNG-A, WALLEM and
PROTOP liable only for the lost/damaged 17 pallets instead of 19 pallets
stated in the bill of lading. This is because, per the "Shipper’s Load and
Count" arrangement, the contents are not required to be checked and
inventoried by the carrier at the port of loading or before said carrier
enters the port of unloading in the Philippines since it is the shipper who has
the sole responsibility for the quantity, description and condition of the
cargoes shipped in container vans.46 As such, the carrier cannot be held
responsible for any discrepancy if the description in the bill of lading is
different from the actual contents of the container.47
Consonant with the ruling in the recent Asian Terminals, Inc. v. Philam
Insurance Co., Inc.,48 the prescriptive period for filing an action for
lost/damaged goods governed by contracts of carriage by sea to and from
Philippine ports in foreign trade is governed by paragraph 6,Section 3 of the
COGSA which states:
(6) Unless notice of loss or damageand the general nature of such loss or
damage be given in writing to the carrier or his agent at the port of discharge
before or at the time of the removal of the goods into the custody of the
person entitled to delivery thereof under the contract of carriage, such
removal shall be prima facieevidence of the delivery by the carrier of the
goods as described in the bill of lading. If the loss or damage is not apparent,
the notice must be given within three days of the delivery.
Said notice of loss or damage maybe endorsed upon the receipt for the goods
given by the person taking delivery thereof.
The amount which PHILAM is entitled to receive shall earn a legal interest at
the rate of six percent (6%) per annum from the date of finality of this
judgment until its full satisfaction pursuant to Nacar v. Gallery Frames.49
WHEREFORE, all the foregoing considered, the Decision dated January 30,
2009 of the Court of Appeals in CA-G.R. CV No. 89482 is hereby AFFlHMED
with MODIFICATION in that the interest rate on the award of US$8,500.00
shall be six percent (6%) per annum from the date of finality of this judgment
until fully paid.
SO ORDERED.

The notice in writing need not be given if the state of the goods has at the
time of their receipt been the subject of joint survey or inspection. In any
event the carrier and the ship shall be discharged from all liability in respect
of loss or damage unless suit is brought withinone year after delivery of the
goods or the date when the goods should have been delivered: Provided, That
if a notice of loss or damage, either apparent or concealed, is not given as
provided for in this section, that fact shall not affect or prejudice the right of
the shipper to bring suit within one year after the delivery of the goods or the
date when the goods should have been delivered.
It was further ruled in Asian Terminals that pursuant to the foregoing COGSA
prov:sion, failure to comply with the notice requirement shall not affect or
prejudice the right of the shipper to bring suit within one year after delivery
of the goods.

The consignee, NOV ARTIS, received the subject shipment on January 5, 2001.
PHILAM, as the subrogee of NOVARTIS, filed a claim against PROTOP on June
4, 2001, against WALLEM on October 12, 2001 and against HEUNG-A on
December 11, 2001, or all within the one-year prescriptive period. Verily
then, despite NOV AR TIS' failure to comply with the three-day notice
requirement, its subrogee PHILAM is not barred from seeking reimbursement
from PROTOP, HEUNG-A and WALLEM because the demands for payment
were timely filed.
CARRIAGE OF GOODS BY SEA ACT
G.R. No. 182864, January 12, 2015
EASTERN SHIPPING LINES, INC., Petitioner, v. BPI/MS INSURANCE CORP., &
MITSUI SUMITOMO INSURANCE CO., LTD., Respondents.
DECISION
PEREZ, J.:
Before this Court is a Petition for Review on Certiorari1 of the Decision2 of the
Second Division of the Court of Appeals in CA-G.R. CV No. 88744 dated 31 January
2008, modifying the Decision of the Regional Trial Court (RTC) by upholding the
liability of Eastern Shipping Lines, Inc. (ESLI) but absolving Asian Terminals, Inc.
(ATI) from liability and deleting the award of attorney’s fees.
The facts gathered from the records follow:
On 29 December 2004, BPI/MS Insurance Corporation (BPI/MS) and Mitsui
Sumitomo Insurance Company Limited (Mitsui) filed a Complaint3 before the RTC
of Makati City against ESLI and ATI to recover actual damages amounting to
US$17,560.48 with legal interest, attorney’s fees and costs of suit.
In their complaint, BPI/MS and Mitsui alleged that on 2 February 2004 at
Yokohama, Japan, Sumitomo Corporation shipped on board ESLI’s vessel
M/V “Eastern Venus 22” 22 coils of various Steel Sheet weighing 159,534
kilograms in good order and condition for transportation to and delivery at the
port of Manila, Philippines in favor of consignee Calamba Steel Center, Inc.
(Calamba Steel) located in Saimsim, Calamba, Laguna as evidenced by a Bill of
Lading with Nos. ESLIYMA001. The declared value of the shipment was
US$83,857.59 as shown by an Invoice with Nos. KJGE-03-1228-NT/KE3. The
shipment was insured with the respondents BPI/MS and Mitsui against all risks
under Marine Policy No. 103-GG03448834.
On 11 February 2004, the complaint alleged that the shipment arrived at the port
of Manila in an unknown condition and was turned over to ATI for safekeeping.
Upon withdrawal of the shipment by the Calamba Steel’s representative, it was
found out that part of the shipment was damaged and was in bad order
condition such that there was a Request for Bad Order Survey. It was found out
that the damage amounted to US$4,598.85 prompting Calamba Steel to reject
the damaged shipment for being unfit for the intended purpose.
On 12 May 2004 at Kashima, Japan, Sumitomo Corporation again shipped on
board ESLI’s vessel M/V “Eastern Venus 25” 50 coils in various Steel Sheet
weighing 383,532 kilograms in good order and condition for transportation
to and delivery at the port of Manila, Philippines in favor of the same consignee
Calamba Steel as evidenced by a Bill of Lading with Nos. ESLIKSMA002. The
declared value of the shipment was US$221,455.58 as evidenced by Invoice Nos.
KJGE-04-1327-NT/KE2. The shipment was insured with the respondents BPI/MS
and Mitsui against all risks under Marine Policy No. 104-GG04457785.
On 21 May 2004, ESLI’s vessel with the second shipment arrived at the port
of Manila partly damaged and in bad order. The coils sustained further
damage during the discharge from vessel to shore until its turnover to ATI’s
custody for safekeeping.
Upon withdrawal from ATI and delivery to Calamba Steel, it was found out
that the damage amounted to US$12,961.63. As it did before, Calamba
Steel rejected the damaged shipment for being unfit for the intended
purpose.
Calamba Steel attributed the damages on both shipments to ESLI as the carrier
and ATI as the arrastreoperator in charge of the handling and discharge of the
coils and filed a claim against them. When ESLI and ATI refused to pay, Calamba
Steel filed an insurance claim for the total amount of the cargo against BPI/MS
and Mitsui as cargo insurers. As a result, BPI/MS and Mitsui became subrogated
in place of and with all the rights and defenses accorded by law in favor of
Calamba Steel.
Opposing the complaint, ATI, in its Answer, denied the allegations and insisted
that the coils in two shipments were already damaged upon receipt from ESLI’s
vessels. It likewise insisted that it exercised due diligence in the handling
of the shipments and invoked that in case of adverse decision, its liability should
not exceed P5,000.00 pursuant to Section 7.01, Article VII4 of the Contract for
Cargo Handling Services between Philippine Ports Authority (PPA) and ATI.5 A
cross-claim was also filed against ESLI.
On its part, ESLI denied the allegations of the complainants and averred that the
damage to both shipments was incurred while the same were in the possession
and custody of ATI and/or of the consignee or its representatives. It also filed a
cross-claim against ATI for indemnification in case of
liability.6chanRoblesvirtualLawlibrary
To expedite settlement, the case was referred to mediation but it was returned
to the trial court for further proceedings due to the parties’ failure to resolve
the legal issues as noted in the Mediator’s Report dated 28 June
2005.7chanRoblesvirtualLawlibrary
On 10 January 2006, the court issued a Pre-Trial Order wherein the following
stipulations were agreed upon by the parties:chanroblesvirtuallawlibrary
1. Parties admitted the capacity of the parties to sue and be sued;
2. Parties likewise admitted the existence and due execution of the
Bill of Lading covering various steel sheets in coil attached to the
Complaint as Annex A;
3. Parties admitted the existence of the Invoice issued by
Sumitomo Corporation, a true and faithful copy of which was
attached to the Complaint as Annex B;
4. Parties likewise admitted the existence of the Marine Cargo
Policy issued by the Mitsui Sumitomo Insurance Company,
Limited, copy of which was attached to the Complaint as Annex
C;
5. [ATI] admitted the existence and due execution of the Request
for Bad Order Survey dated February 13, 2004, attached to the
Complaint as Annex D;
6. Insofar as the second cause of action, [ESLI] admitted the
existence and due execution of the document [Bill of Lading
Nos. ESLIKSMA002, Invoice with Nos. KJGE-04-1327-NT/KE2 and
Marine Cargo Policy against all risks on the second shipment]
attached to the Complaint as Annexes E, F and G;
7. [ATI] admitted the existence of the Bill of Lading together with
the Invoices and Marine Cargo Policy. [It] likewise admitted by
[ATI] are the Turn Over Survey of Bad Order Cargoes attached
to the Complaint as Annexes H, H-1 and J.8
The parties agreed that the procedural issue was whether there was a valid
subrogation in favor of BPI/MS and Mitsui; and that the substantive issues were,
whether the shipments suffered damages, the cause of damage, and the entity
liable for reparation of the damages caused.9chanRoblesvirtualLawlibrary
Due to the limited factual matters of the case, the parties were required to
present their evidence through affidavits and documents. Upon submission of
these evidence, the case was submitted for
resolution.10chanRoblesvirtualLawlibrary
BPI/MS and Mitsui, to substantiate their claims, submitted the Affidavits of (1)
Mario A. Manuel (Manuel),11 the Cargo Surveyor of Philippine Japan Marine
Surveyors and Sworn Measurers Corporation who personally examined and
conducted the surveys on the two shipments; (2) Richatto P. Almeda,12 the
General Manager of Calamba Steel who oversaw and examined the condition,
quantity, and quality of the shipped steel coils, and who thereafter filed formal
notices and claims against ESLI and ATI; and (3) Virgilio G. Tiangco, Jr.,13 the
Marine Claims Supervisor of BPI/MS who processed the insurance claims of
Calamba Steel. Along with the Affidavits were the Bills of Lading14 covering the
two shipments, Invoices,15 Notices of Loss of Calamba Steel,16 Subrogation
Form,17 Insurance Claims,18 Survey Reports,19 Turn Over Survey of Bad Order
Cargoes20 and Request for Bad Order Survey.21chanRoblesvirtualLawlibrary
ESLI, in turn, submitted the Affidavits of Captain Hermelo M. Eduarte,22 Manager
of the Operations Department of ESLI, who monitored in coordination with ATI
the discharge of the two shipments, and Rodrigo Victoria (Rodrigo),23 the Cargo
Surveyor of R & R Industrial and Marine Services, Inc., who personally surveyed
the subject cargoes on board the vessel as well as the manner the ATI employees
discharged the coils. The documents presented were the Bills of Lading,
Secretary’s Certificate24 of PPA, granting ATI the duty and privilege to
provide arrastre and stevedoring services at South Harbor, Port of Manila,
Contract for Cargo Handling Services,25 Damage Report26 and Turn Over Report
made by Rodrigo.27 ESLI also adopted the Survey Reports submitted by BPI/MS
and Mitsui.28chanRoblesvirtualLawlibrary
Lastly, ATI submitted the Affidavits of its Bad Order Inspector Ramon Garcia
(Garcia)29 and Claims Officer Ramiro De Vera.30 The documents attached to the
submissions were the Turn Over Surveys of Bad Cargo Order,31 Requests for Bad
Order Survey,32 Cargo Gatepasses issued by ATI,33 Notices of Loss/Claims of
Calamba Steel34 and Contract for Cargo Handling
35
Services. chanRoblesvirtualLawlibrary
On 17 September 2006, RTC Makati City rendered a decision finding both the ESLI
and ATI liable for the damages sustained by the two shipments. The dispositive
portion reads:chanroblesvirtuallawlibrary
WHEREFORE, judgment is hereby rendered in favor of [BPI/MS and Mitsui] and
against [ESLI Inc.] and [ATI], jointly and severally ordering the latter to pay
[BPI/MS and Mitsui] the following:
1. Actual damages amounting to US$17,560.48 plus 6% legal
interest per annum commencing from the filing of this
complaint, until the same is fully paid;
2. Attorney’s fees in a sum equivalent to 20% of the amount
claimed;
3. Costs of suit.36
Aggrieved, ESLI and ATI filed their respective appeals before the Court of Appeals
on both questions of fact and law.37chanRoblesvirtualLawlibrary
Before the appellate court, ESLI argued that the trial court erred when it found
BPI/MS has the capacity to sue and when it assumed jurisdiction over the case. It
also questioned the ruling on its liability since the Survey Reports indicated that
the cause of loss and damage was due to the “rough handling of ATI’s
stevedores during discharge from vessel to shore and during loading
operation onto the trucks.” It invoked the limitation of liability of US$500.00
per package as provided in Commonwealth Act No. 65 or the Carriage of
Goods by Sea Act (COGSA).38chanRoblesvirtualLawlibrary
On the other hand, ATI questioned the capacity to sue of BPI/MS and Mitsui and
the award of attorney’s fees despite its lack of justification in the body of the
decision. ATI also imputed error on the part of the trial court when it ruled
that ATI’s employees were negligent in the ruling of the shipments. It also
insisted on the applicability of the provision of COGSA on limitation of
liability.39chanRoblesvirtualLawlibrary
In its Decision,40 the Court of Appeals absolved ATI from liability thereby
modifying the decision of the trial court. The dispositive portions
reads:chanroblesvirtuallawlibrary
WHEREFORE, the appeal of ESLI is DENIED, while that of ATI is GRANTED. The
assailed Judgment dated September 17, 2006 of Branch 138, RTC of Makati City
in Civil Case No. 05-108 is hereby MODIFIED absolving ATI from liability and
deleting the award of attorney’s fees. The rest of the decision is affirmed.41
Before this Court, ESLI seeks the reversal of the ruling on its liability.
At the outset, and notably, ESLI included among its arguments the attribution of
liability to ATI but it failed to implead the latter as a party to the present petition.
This non-inclusion was raised by BPI/MS and Mitsui as an issue42 in its
Comment/Opposition43 and Memorandum:44chanRoblesvirtualLawlibrary
For reasons known only to [ESLI], it did not implead ATI as a party respondent in
this case when it could have easily done so. Considering the nature of the
arguments raised by petitioner pointing to ATI as solely responsible for the
damages sustained by the subject shipments, it is respectfully submitted that ATI
is an indispensable party in this case. Without ATI being impleaded, the issue of
whether ATI is solely responsible for the damages could not be determined with
finality by this Honorable Court. ATI certainly deserves to be heard on the issue
but it could not defend itself because it was not impleaded before this Court.
Perhaps, this is the reason why [ESLI] left out ATI in this case so that it could not
rebut while petitioner puts it at fault.45
ESLI in its Reply46 put the blame for the non-exclusion of ATI to BPI/MS and
Mitsui:chanroblesvirtuallawlibrary
[BPI/MS and Mitsui] claim that herein [ESLI] did not implead [ATI] as a party
respondent in the Petition for Review on Certiorari it had filed. Herein Petitioner
submits that it is not the obligation of [ESLI] to implead ATI as the same is already
the look out of [BPI/MS and Mitsui]. If [BPI/MS and Mitsui] believe that ATI should
be made liable, they should have filed a Motion for Reconsideration with the
Honorable Court of Appeals. The fact that [BPI/MS and Mitsui] did not even lift a
finger to question the decision of the Honorable Court of Appeals goes to show
that [BPI/MS and Mitsui] are not interested as to whether or not ATI is indeed
liable.47
It is clear from the exchange that both [ESLI] and [BPI/MS and Mitsui] are aware
of the non-inclusion of ATI, the arrastre operator, as a party to this review of the
Decision of the Court of Appeals. By blaming each other for the exclusion of ATI,
[ESLI] and [BPI/MS and Mitsui] impliedly agree that the absolution of ATI from
liability is final and beyond review. Clearly, [ESLI] is the consequential loser. It
alone must bear the proven liability for the loss of the shipment. It cannot shift
the blame to ATI, the arrastre operator, which has been cleared by the Court of
Appeals. Neither can it argue that the consignee should bear the loss.
Thus confined, we go to the merits of the arguments of ESLI.
First Issue: Liability of ESLI
ESLI bases of its non-liability on the survey reports prepared by BPI/MS and
Mitsui’s witness Manuel which found that the cause of damage was the
rough handling on the shipment by the stevedores of ATI during the discharging
operations.48 However, Manuel does not absolve ESLI of liability. The witness in
fact includes ESLI in the findings of negligence. Paragraphs 3 and 11 of the
affidavit of witness Manuel attribute fault to both ESLI and ATI.
3. The vessel M.V. “EASTERN VENUS” V 22-S carrying the said shipment
of 22 coils of various steel sheets arrived at the port of Manila and
discharged the said shipment on or about 11 February 2004 to
the arrastre operator [ATI]. I personally noticed that the 22 coils were roughly
handled during their discharging from the vessel to the pier of [ATI] and even
during the loading operations of these coils from the pier to the trucks that will
transport the coils to the consignees’s warehouse. During the aforesaid
operations, the employees and forklift operators of [ESLI] and [ATI] were very
negligent in the handling of the subject cargoes.
x x x x
11. The vessel M.V. “EASTERN VENUS” V 25-S carrying the said shipment
of 50 coils of various steel sheets arrived at the port of Manila and discharged
the said shipment on or about 21 May 2004 to the arrastre operator [ATI]. I
personally noticed that the 50 coils were roughly handled during their
discharging from the vessel to the pier of [ATI] and even during the loading
operations of these coils from the pier to the trucks that will transport the coils
to the consignees’s warehouse. During the aforesaid operations, the
employees and forklift operators of [ESLI] and [ATI] were very negligent in the
handling of the subject cargoes.49 (Emphasis supplied).
ESLI cannot rely only on parts it chooses. The entire body of evidence should
determine the liability of the parties. From the statements of Manuel, [ESLI] was
negligent, whether solely or together with ATI.
To further press its cause, ESLI cites the affidavit of its witness Rodrigo who stated
that the cause of the damage was the rough mishandling by ATI’s stevedores.
The affidavit of Rodrigo states that his functions as a cargo surveyor are,
(1) getting hold of a copy of the bill of lading and cargo manifest; (2) inspection
and monitoring of the cargo on-board, during discharging and after unloading
from the vessel; and (3) making a necessary report of his findings. Thus, upon
arrival at the South Harbor of Manila of the two vessels of ESLI on 11 February
2004 and on 21 May 2004, Rodrigo immediately boarded the vessels to inspect
and monitor the unloading of the cargoes. In both instances, it was his finding
that there was mishandling on the part of ATI’s stevedores which he reported
as the cause of the damage.50chanRoblesvirtualLawlibrary
Easily seen, however, is the absence of a crucial point in determining liability of
either or both ESLI and ATI – lack of determination whether the cargo was in a
good order condition as described in the bills of lading at the time of his boarding.
As Rodrigo admits, it was also his duty to inspect and monitor the cargo on-board
upon arrival of the vessel. ESLI cannot invoke its non-liability solely on the manner
the cargo was discharged and unloaded. The actual condition of the cargoes upon
arrival prior to discharge is equally important and cannot be disregarded. Proof
is needed that the cargo arrived at the port of Manila in good order condition and
remained as such prior to its handling by ATI.
Common carriers, from the nature of their business and on public policy
considerations, are bound to observe extraordinary diligence in the vigilance over
the goods transported by them. Subject to certain exceptions enumerated under
Article 173451 of the Civil Code, common carriers are responsible for the loss,
destruction, or deterioration of the goods. The extraordinary responsibility of the
common carrier lasts from the time the goods are unconditionally placed in the
possession of, and received by the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee, or to the
person who has a right to receive them.52chanRoblesvirtualLawlibrary
In maritime transportation, a bill of lading is issued by a common carrier as a
contract, receipt and symbol of the goods covered by it. If it has no notation of
any defect or damage in the goods, it is considered as a “clean bill of lading.” A
clean bill of lading constitutes prima facie evidence of the receipt by the carrier
of the goods as therein described.53chanRoblesvirtualLawlibrary
Based on the bills of lading issued, it is undisputed that ESLI received the two
shipments of coils from shipper Sumitomo Corporation in good condition at the
ports of Yokohama and Kashima, Japan. However, upon arrival at the port of
Manila, some coils from the two shipments were partly dented and crumpled as
evidenced by the Turn Over Survey of Bad Order Cargoes No. 67982 dated 13
February 200454 and Turn Over Survey of Bad Order Cargoes Nos. 6836355 and
6836556 both dated 24 May 2004 signed by ESLI’s representatives, a certain
Tabanao and Rodrigo together with ATI’s representative Garcia. According to
Turn Over Survey of Bad Order Cargoes No. 67982, four coils and one
skid were partly dented and crumpled prior to turnover by ESLI to ATI’s
possession while a total of eleven coils were partly dented and crumpled prior
to turnover based on Turn Over Survey Bad Order Cargoes Nos. 68363 and 68365.
Calamba Steel requested for a re-examination of the damages sustained by the
two shipments. Based on the Requests for Bad Order Survey Nos. 5826757 and
5825458 covering the first shipment dated 13 and 17 February 2004, four coils
were damaged prior to turnover. The second Request for Bad Order Survey No.
5865859 dated 25 May 2004 also affirmed the earlier findings that eleven coils on
the second shipment were damaged prior to turnover.
In Asian Terminals, Inc., v. Philam Insurance Co., Inc.,60 the Court based its ruling
on liability on the Bad Order Cargo and Turn Over of Bad Order. The Receipt bore
a notation “B.O. not yet t/over to ATI,” while the Survey stated that the said
steel case was not opened at the time of survey and was accepted by the
arrastre in good order. Based on these documents, packages in the Asian
Terminals, Inc. case were found damaged while in the custody of the carrier
Westwind Shipping Corporation.
Mere proof of delivery of the goods in good order to a common carrier and of
their arrival in bad order at their destination constitutes a prima facie case of
fault or negligence against the carrier. If no adequate explanation is given as to
how the deterioration, loss, or destruction of the goods happened, the
transporter shall be held responsible.61 From the foregoing, the fault is
attributable to ESLI. While no longer an issue, it may be nonetheless state that
ATI was correctly absolved of liability for the damage.
Second Issue: Limitation of Liability
ESLI assigns as error the appellate court’s finding and reasoning that the
package limitation under the COGSA62 is inapplicable even if the bills of lading
covering the shipments only made reference to the corresponding invoices.
Noticeably, the invoices specified among others the weight, quantity, description
and value of the cargoes, and bore the notation “Freight Prepaid” and “As
Arranged.”63 ESLI argues that the value of the cargoes was not incorporated in
the bills of lading64 and that there was no evidence that the shipper had
presented to the carrier in writing prior to the loading of the actual value of the
cargo, and, that there was a no payment of corresponding freight.65 Finally,
despite the fact that ESLI admits the existence of the invoices, it denies any
knowledge either of the value declared or of any information contained
therein.66chanRoblesvirtualLawlibrary
According to the New Civil Code, the law of the country to which the goods are
to be transported shall govern the liability of the common carrier for their loss,
destruction or deterioration.67 The Code takes precedence as the primary law
over the rights and obligations of common carriers with the Code of Commerce
and COGSA applying suppletorily.68chanRoblesvirtualLawlibrary
The New Civil Code provides that a stipulation limiting a common carrier’s
liability to the value of the goods appearing in the bill of lading is binding,
unless the shipper or owner declares a greater value.69 In addition, a contract
fixing the sum that may be recovered by the owner or shipper for the loss,
destruction, or deterioration of the goods is valid, if it is reasonable and just
under the circumstances, and has been fairly and freely agreed
upon.70chanRoblesvirtualLawlibrary
The value of the goods, in calculating and adjusting any claims for which the
Carrier may be liable shall, to avoid uncertainties and difficulties in fixing value,
be deemed to the invoice value of the goods plus ocean freight and insurance, if
paid, Irrespective of whether any other value is greater or less, and any partial
loss or damage shall be adjusted pro rata on the basis of such value; provided,
however, that neither the Carrier nor the ship shall in any event be or become
liable for any loss, non-delivery or misdelivery of or damage or delay to, or in
connection with the custody or transportation of the goods in an amount
exceeding $500.00 per package lawful money of the United States, or in case of
goods not shipped in packages, per customary freight unit, unless the nature of
the goods and a valuation higher than $500.00 is declared in writing by the
shipper on delivery to the Carrier and inserted in the bill of lading and extra
freight is paid therein as required by applicable tariffs to obtain the benefit of
such higher valuation. In which case even if the actual value of the goods per
package or unit exceeds such declared value, the value shall nevertheless be
deemed to be the declared value and any Carrier’s liability shall not exceed
such declared value and any partial loss or damage shall be adjusted pro-rata
on the basis thereof. The Carrier shall not be liable for any loss or profit or any
consequential or special damage and shall have the option of replacing any lost
goods and replacing o reconditioning any damage goods. No oral declaration or
agreement shall be evidence of a value different from that provided therein.71
Accordingly, the issue whether or not ESLI has limited liability as a carrier is
determined by either absence or presence of proof that the nature and value of
the goods have been declared by Sumitomo Corporation and inserted in the bills
of lading.
ESLI contends that the invoices specifying the weight, quantity, description and
value of the cargo in reference to the bills of lading do not prove the fact that the
shipper complied with the requirements mandated by the COGSA. It contends
that there must be an insertion of this declaration in the bill of lading itself to fall
outside the statutory limitation of liability.

COGSA, on the other hand, provides under Section 4, Subsection 5 that an ESLI asserts that the appellate court erred when it ruled that there was
amount recoverable in case of loss or damage shall not exceed US$500.00 per compliance with the declaration requirement even if the value of the shipment
package or per customary freight unless the nature and value of such goods and fact of payment were indicated on the invoice and not on the bill of lading
have been declared by the shipper before shipment and inserted in the bill of itself.
lading.
There is no question about the declaration of the nature, weight and description
In line with these maritime law provisions, paragraph 13 of bills of lading issued of the goods on the first bill of lading.
by ESLI to the shipper specifically provides a similar
restriction:chanroblesvirtuallawlibrary The bills of lading represent the formal expression of the parties’ rights, duties
and obligations. It is the best evidence of the intention of the parties which
is to be deciphered from the language used in the contract, not from the
unilateral post facto assertions of one of the parties, or of third parties who are
strangers to the contract.72 Thus, when the terms of an agreement have been
reduced to writing, it is deemed to contain all the terms agreed upon and there
can be, between the parties and their successors in interest, no evidence of such
terms other than the contents of the written
agreement.73chanRoblesvirtualLawlibrary
As to the non-declaration of the value of the goods on the second bill of lading,
we see no error on the part of the appellate court when it ruled that there was a
compliance of the requirement provided by COGSA. The declaration requirement
does not require that all the details must be written down on the very bill of
lading itself. It must be emphasized that all the needed details are in the invoice,
which “contains the itemized list of goods shipped to a buyer, stating
quantities, prices, shipping charges,” and other details which may contain
numerous sheets.74 Compliance can be attained by incorporating the invoice, by
way of reference, to the bill of lading provided that the former containing the
description of the nature, value and/or payment of freight charges is as in this
case duly admitted as evidence.
In Unsworth Transport International (Phils.), Inc. v. Court of Appeals,75 the Court
held that the insertion of an invoice number does not in itself sufficiently and
convincingly show that petitioner had knowledge of the value of the cargo.
However, the same interpretation does not squarely apply if the carrier had been
advised of the value of the goods as evidenced by the invoice and payment of
corresponding freight charges. It would be unfair for ESLI to invoke the limitation
under COGSA when the shipper in fact paid the freight charges based on the value
of the goods. In Adams Express Company v. Croninger,76 it was said: “Neither is it
conformable to plain principles of justice that a shipper may understate the value
of his property for the purpose of reducing the rate, and then recover a larger
value in case of loss. Nor does a limitation based upon an agreed value for the
purpose of adjusting the rate conflict with any sound principle of public policy.”
Conversely, but for the same reason, it is unjust for ESLI to invoke the limitation
when it is informed that the shipper paid the freight charges corresponding to
the value of the goods.
Also, ESLI admitted the existence and due execution of the Bills of Lading and the
Invoice containing the nature and value of the goods on the second shipment. As
written in the Pre-Trial Order,77 the parties, including ESLI, admitted
the existence and due execution of the two Bills of Lading78 together with
the Invoice on the second shipment with Nos. KJGE-04-1327-NT/KE279 dated 12
May 2004. On the first shipment, ESLI admitted the existence of the Invoice with
Nos. KJGE-031228-NT/KE380dated 2 February 2004.
The effect of admission of the genuineness and due execution of a document
means that the party whose signature it bears admits that he voluntarily signed
the document or it was signed by another for him and with his authority.81
A review of the bill of ladings and invoice on the second shipment indicates that
the shipper declared the nature and value of the goods with the corresponding
payment of the freight on the bills of lading. Further, under the caption
“description of packages and goods,” it states that the description of the
goods to be transported as “various steel sheet in coil” with a gross weight
of 383,532 kilograms (89.510 M3). On the other hand, the amount of the
goods is referred in the invoice, the due execution and genuineness of
which has already been admitted by ESLI, is US$186,906.35 as freight on
board with payment of ocean freight of US$32,736.06 and insurance premium of
US$1,813.17. From the foregoing, we rule that the non- limitation of liability
applies in the present case.
We likewise accord the same binding effect on the contents of the invoice on the
first shipment.
ESLI contends that what was admitted and written on the pre-trial order was only
the existence of the first shipment’ invoice but not its contents and due
execution. It invokes admission of existence but renounces any knowledge
of the contents written on it.82chanRoblesvirtualLawlibrary
Judicial admissions are legally binding on the party making the admissions. Pre-
trial admission in civil cases is one of the instances of judicial admissions explicitly
provided for under Section 7, Rule 18 of the Rules of Court, which mandates that
the contents of the pre-trial order shall control the subsequent course of the
action, thereby, defining and limiting the issues to be tried. In Bayas v.
Sandiganbayan,83this Court emphasized that:chanroblesvirtuallawlibrary
Once the stipulations are reduced into writing and signed by the parties and their
counsels, they become binding on the parties who made them. They become
judicial admissions of the fact or facts stipulated. Even if placed at a
disadvantageous position, a party may not be allowed to rescind them
unilaterally, it must assume the consequences of the disadvantage.84
Moreover, in Alfelor v. Halasan,85 this Court declared that:
A party who judicially admits a fact cannot later challenge that fact as judicial
admissions are a waiver of proof; production of evidence is dispensed with. A
judicial admission also removes an admitted fact from the field of controversy.
Consequently, an admission made in the pleadings cannot be controverted by
the party making such admission and are conclusive as to such party, and all
proofs to the contrary or inconsistent therewith should be ignored, whether
objection is interposed by the party or not. The allegations, statements or
admissions contained in a pleading are conclusive as against the pleader. A party
cannot subsequently take a position contrary of or inconsistent with what was
pleaded.86 (Citations omitted)

The admission having been made in a stipulation of facts at pre-trial by the

parties, it must be treated as a judicial admission. Under Section 4, of Rule 129 of
the Rules of Court, a judicial admission requires no
proof.87chanRoblesvirtualLawlibrary

It is inconceivable that a shipping company with maritime experience and

resource like the ESLI will admit the existence of a maritime document like an
invoice even if it has no knowledge of its contents or without having any copy
thereof.

ESLI also asserts that the notation “Freight Prepaid” and “As Arranged,” does
not prove that there was an actual declaration made in writing of the
payment of freight as required by COGSA. ESLI did not as it could not deny
payment of freight in the amount indicated in the documents. Indeed, the
earlier discussions on ESLI’s admission of the existence and due execution
of the invoices, cover and disprove the argument regarding actual
declaration of payment. The bills of lading bore a notation on the manner
of payment which was “Freight Prepaid” and “As Arranged” while the
invoices indicated the amount exactly paid by the shipper to
ESLI.chanrobleslaw

WHEREFORE, we DENY the Petition for Review on Certiorari. The Decision dated
31 January 2008 and Resolution dated 5 May 2008 of the Second Division of the
Court of Appeals in CA-G.R. CV. No. 88744 are hereby AFFIRMED.

SO ORDERED.
CONSTITUTIONALITY OF AIR TRANSPORTATION
G.R. No. 101538 June 23, 1992
AUGUSTO BENEDICTO SANTOS III, represented by his father and legal
guardian, Augusto Benedicto Santos, petitioner, vs.
NORTHWEST ORIENT AIRLINES and COURT OF APPEALS, respondents.
CRUZ, J.:
This case involves the Proper interpretation of Article 28(1) of the Warsaw
Convention, reading as follows:
Art. 28. (1) An action for damage must be brought at the option of the
plaintiff, in the territory of one of the High Contracting Parties, either before
the court of the domicile of the carrier or of his principal place of business, or
where he has a place of business through which the contract has been made,
or before the court at the place of destination.
The petitioner is a minor and a resident of the Philippines. Private respondent
Northwest Orient Airlines (NOA) is a foreign corporation with principal office
in Minnesota, U.S.A. and licensed to do business and maintain a branch office
in the Philippines.
On October 21, 1986, the petitioner purchased from NOA a round-trip ticket
in San Francisco. U.S.A., for his flight from San Francisco to Manila via Tokyo
and back. The scheduled departure date from Tokyo was December 20, 1986.
No date was specified for his return to San Francisco. 1
On December 19, 1986, the petitioner checked in at the NOA counter in the
San Francisco airport for his scheduled departure to Manila. Despite a
previous confirmation and re-confirmation, he was informed that he had no
reservation for his flight from Tokyo to Manila. He therefore had to be wait-
listed.
On March 12, 1987, the petitioner sued NOA for damages in the Regional Trial
Court of Makati. On April 13, 1987, NOA moved to dismiss the complaint on
the ground of lack of jurisdiction. Citing the above-quoted article, it
contended that the complaint could be instituted only in the territory of one
of the High Contracting Parties, before:
1. the court of the domicile of the carrier;
2. the court of its principal place of business;
3. the court where it has a place of business through which the contract had
been made;
4. the court of the place of destination.
The private respondent contended that the Philippines was not its domicile
nor was this its principal place of business. Neither was the petitioner's ticket
issued in this country nor was his destination Manila but San Francisco in the
United States.
On February 1, 1988, the lower court granted the motion and dismissed the
case. 2 The petitioner appealed to the Court of Appeals, which affirmed the
decision of the lower court. 3 On June 26, 1991, the petitioner filed a motion
for reconsideration, but the same was denied. 4 The petitioner then came to
this Court, raising substantially the same issues it submitted in the Court of
Appeals.
The assignment of errors may be grouped into two major issues, viz:
(1) the constitutionality of Article 28(1) of the Warsaw Convention; and
(2) the jurisdiction of Philippine courts over the case.
The petitioner also invokes Article 24 of the Civil Code on the protection of
minors.
THE ISSUE OF CONSTITUTIONALITY
A. The petitioner claims that the lower court erred in not ruling that
Article 28(1) of the Warsaw Convention violates the constitutional
guarantees of due process and equal protection.
The Republic of the Philippines is a party to the Convention for the Unification
of Certain Rules Relating to International Transportation by Air, otherwise
known as the Warsaw Convention. It took effect on February 13, 1933. The
Convention was concurred in by the Senate, through its Resolution No. 19, on
May 16, 1950. The Philippine instrument of accession was signed by President
Elpidio Quirino on October 13, 1950, and was deposited with the Polish
government on November 9, 1950. The Convention became applicable to the
Philippines on February 9, 1951. On September 23, 1955, President Ramon
Magsaysay issued Proclamation No. 201, declaring our formal adherence
thereto. "to the end that the same and every article and clause thereof may
be observed and fulfilled in good faith by the Republic of the Philippines and
the citizens thereof." 5
The Convention is thus a treaty commitment voluntarily assumed by the
Philippine government and, as such, has the force and effect of law in this
country.
The petitioner contends that Article 28(1) cannot be applied in the present
case because it is unconstitutional. He argues that there is no substantial
distinction between a person who purchases a ticket in Manila and a person
who purchases his ticket in San Francisco. The classification of the places in
which actions for damages may be brought is arbitrary and irrational and thus
violates the due process and equal protection clauses.
It is well-settled that courts will assume jurisdiction over a constitutional
question only if it is shown that the essential requisites of a judicial inquiry
into such a question are first satisfied. Thus, there must be an actual case or
controversy involving a conflict of legal rights susceptible of judicial
determination; the constitutional question must have been opportunely
raised by the proper party; and the resolution of the question is unavoidably
necessary to the decision of the case itself. 6
Courts generally avoid having to decide a constitutional question. This
attitude is based on the doctrine of separation of powers, which enjoins upon
the departments of the government a becoming respect for each other's acts.
The treaty which is the subject matter of this petition was a joint legislative-
executive act. The presumption is that it was first carefully studied and
determined to be constitutional before it was adopted and given the force of
law in this country.
The petitioner's allegations are not convincing enough to overcome this
presumption. Apparently, the Convention considered the four places
designated in Article 28 the most convenient forums for the litigation of any
claim that may arise between the airline and its passenger, as distinguished
from all other places. At any rate, we agree with the respondent court that
this case can be decided on other grounds without the necessity of resolving
the constitutional issue.
B. The petitioner claims that the lower court erred in not ruling that Art. 28(1)
of the Warsaw Convention is inapplicable because of a fundamental change
in the circumstances that served as its basis.
The petitioner goes at great lengths to show that the provisions in the
Convention were intended to protect airline companies under "the
conditions prevailing then and which have long ceased to exist." He argues
that in view of the significant developments in the airline industry through
the years, the treaty has become irrelevant. Hence, to the extent that it has
lost its basis for approval, it has become unconstitutional.
The petitioner is invoking the doctrine of rebus sic stantibus. According to
Jessup, "this doctrine constitutes an attempt to formulate a legal principle
which would justify non-performance of a treaty obligation if the conditions
with relation to which the parties contracted have changed so materially and
so unexpectedly as to create a situation in which the exaction of performance
would be unreasonable." 7 The key element of this doctrine is the vital
change in the condition of the contracting parties that they could not have
foreseen at the time the treaty was concluded.
The Court notes in this connection the following observation made in Day v.
Trans World Airlines, Inc.: 8
The Warsaw drafters wished to create a system of liability rules that would
cover all the hazards of air travel . . . The Warsaw delegates knew that, in the
years to come, civil aviation would change in ways that they could not
foresee. They wished to design a system of air law that would be both durable
and flexible enough to keep pace with these changes . . . The ever-changing
needs of the system of civil aviation can be served within the framework they
created.
It is true that at the time the Warsaw Convention was drafted, the airline
industry was still in its infancy. However, that circumstance alone is not
sufficient justification for the rejection of the treaty at this time. The changes
recited by the petitioner were, realistically, not entirely unforeseen although
they were expected in a general sense only. In fact, the Convention itself,
anticipating such developments, contains the following significant provision:
Article 41. Any High Contracting Party shall be entitled not earlier than two
years after the coming into force of this convention to call for the assembling
of a new international conference in order to consider any improvements
which may be made in this convention. To this end, it will communicate with
the Government of the French Republic which will take the necessary
measures to make preparations for such conference.
But the more important consideration is that the treaty has not been rejected
by the Philippine government. The doctrine of rebus sic stantibus does not
operate automatically to render the treaty inoperative. There is a necessity
for a formal act of rejection, usually made by the head of State, with a
statement of the reasons why compliance with the treaty is no longer
required.
In lieu thereof, the treaty may be denounced even without an expressed
justification for this action. Such denunciation is authorized under its Article
39, viz:
Article 39. (1) Any one of the High Contracting Parties may denounce this
convention by a notification addressed to the Government of the Republic of
Poland, which shall at once inform the Government of each of the High
Contracting Parties. (2) Denunciation shall take effect six months after the
notification of denunciation, and shall operate only as regards the party
which shall have proceeded to denunciation.
Obviously. rejection of the treaty, whether on the ground of rebus sic
stantibus or pursuant to Article 39, is not a function of the courts but of the
other branches of government. This is a political act. The conclusion and
renunciation of treaties is the prerogative of the political departments and
may not be usurped by the judiciary. The courts are concerned only with the
interpretation and application of laws and treaties in force and not with their
wisdom or efficacy.
B. The petitioner claims that the lower court erred in ruling that the
plaintiff must sue in the United States, because this would deny him
the right to access to our courts.
The petitioner alleges that the expenses and difficulties he will incur in filing
a suit in the United States would constitute a constructive denial of his right
to access to our courts for the protection of his rights. He would consequently
be deprived of this vital guaranty as embodied in the Bill of Rights.
Obviously, the constitutional guaranty of access to courts refers only to courts
with appropriate jurisdiction as defined by law. It does not mean that a
person can go to any court for redress of his grievances regardless of the
nature or value of his claim. If the petitioner is barred from filing his complaint
before our courts, it is because they are not vested with the appropriate
jurisdiction under the Warsaw Convention, which is part of the law of our
land.
THE ISSUE OF JURISDICTION.
A. The petitioner claims that the lower court erred in not ruling that Article
28(1) of the Warsaw Convention is a rule merely of venue and was waived by
defendant when it did not move to dismiss on the ground of improper venue.
By its own terms, the Convention applies to all international transportation
of persons performed by aircraft for hire.
International transportation is defined in paragraph (2) of Article 1 as follows:
(2) For the purposes of this convention, the expression "international
transportation" shall mean any transportation in which, according to the
contract made by the parties, the place of departure and the place of
destination, whether or not there be a break in the transportation or a
transshipment, are situated [either] within the territories of two High
Contracting Parties . . .
Whether the transportation is "international" is determined by the contract
of the parties, which in the case of passengers is the ticket. When the contract
of carriage provides for the transportation of the passenger between certain
designated terminals "within the territories of two High Contracting Parties,"
the provisions of the Convention automatically apply and exclusively govern
the rights and liabilities of the airline and its passenger.
Since the flight involved in the case at bar is international, the same being
from the United States to the Philippines and back to the United States, it is
subject to the provisions of the Warsaw Convention, including Article 28(1),
which enumerates the four places where an action for damages may be
brought.
Whether Article 28(1) refers to jurisdiction or only to venue is a question over
which authorities are sharply divided. While the petitioner cites several cases
holding that Article 28(1) refers to venue rather than jurisdiction, 9 there are
later cases cited by the private respondent supporting the conclusion that the
provision is jurisdictional. 10
Venue and jurisdiction are entirely distinct matters. Jurisdiction may not be
conferred by consent or waiver upon d court which otherwise would have no
jurisdiction over the subject-matter of an action; but the venue of an action
as fixed by statute may be changed by the consent of the parties and an
objection that the plaintiff brought his suit in the wrong county may be
waived by the failure of the defendant to make a timely objection. In either
case, the court may render a valid judgment. Rules as to jurisdiction can never
be left to the consent or agreement of the parties, whether or not a
prohibition exists against their alteration. 11
A number of reasons tends to support the characterization of Article 28(1) as
a jurisdiction and not a venue provision. First, the wording of Article 32, which
indicates the places where the action for damages "must" be brought,
underscores the mandatory nature of Article 28(1). Second, this
characterization is consistent with one of the objectives of the Convention,
which is to "regulate in a uniform manner the conditions of international
transportation by air." Third, the Convention does not contain any provision
prescribing rules of jurisdiction other than Article 28(1), which means that the
phrase "rules as to jurisdiction" used in Article 32 must refer only to Article
28(1). In fact, the last sentence of Article 32 specifically deals with the
exclusive enumeration in Article 28(1) as "jurisdictions," which, as such,
cannot be left to the will of the parties regardless of the time when the
damage occurred.
This issue was analyzed in the leading case of Smith v. Canadian Pacific
Airways, Ltd., 12 where it was held:
. . . Of more, but still incomplete, assistance is the wording of Article 28(2),
especially when considered in the light of Article 32. Article 28(2) provides
that "questions of procedure shall be governed by the law of the court to
which the case is submitted" (Emphasis supplied). Section (2) thus may be
read to leave for domestic decision questions regarding the suitability and
location of a particular Warsaw Convention case.
In other words, where the matter is governed by the Warsaw Convention,
jurisdiction takes on a dual concept. Jurisdiction in the international sense
must be established in accordance with Article 28(1) of the Warsaw
Convention, following which the jurisdiction of a particular court must be
established pursuant to the applicable domestic law. Only after the question
of which court has jurisdiction is determined will the issue of venue be taken
up. This second question shall be governed by the law of the court to which
the case is submitted.
The petitioner submits that since Article 32 states that the parties are
precluded "before the damages occurred" from amending the rules of Article
28(1) as to the place where the action may be brought, it would follow that
the Warsaw Convention was not intended to preclude them from doing so
"after the damages occurred."
Article 32 provides:
Art. 32. Any clause contained in the contract and all special agreements
entered into before the damage occurred by which the parties purport to
infringe the rules laid down by this convention, whether by deciding the law
to be applied, or by altering the rules as to jurisdiction, shall be null and void.
Nevertheless for the transportation of goods, arbitration clauses shall be
allowed, subject to this convention, if the arbitration is to take place within
one of the jurisdictions referred to in the first paragraph of Article 28.
His point is that since the requirements of Article 28(1) can be waived "after
the damages (shall have) occurred," the article should be regarded as
possessing the character of a "venue" and not of a "jurisdiction" provision.
Hence, in moving to dismiss on the ground of lack of jurisdiction, the private
respondent has waived improper venue as a ground to dismiss.
The foregoing examination of Article 28(1) in relation to Article 32 does not
support this conclusion. In any event, we agree that even
granting arguendo that Article 28(1) is a venue and not a jurisdictional
provision, dismissal of the case was still in order. The respondent court was
correct in affirming the ruling of the trial court on this matter, thus:
Santos' claim that NOA waived venue as a ground of its motion to dismiss is
not correct. True it is that NOA averred in its MOTION TO DISMISS that the
ground thereof is "the Court has no subject matter jurisdiction to entertain
the Complaint" which SANTOS considers as equivalent to "lack of jurisdiction
over the subject matter . . ." However, the gist of NOA's argument in its
motion is that the Philippines is not the proper place where SANTOS could file
the action — meaning that the venue of the action is improperly laid. Even
assuming then that the specified ground of the motion is erroneous, the fact
is the proper ground of the motion — improper venue — has been
discussed therein.
Waiver cannot be lightly inferred. In case of doubt, it must be resolved in
favor of non-waiver if there are special circumstances justifying this
conclusion, as in the petition at bar. As we observed in Javier vs. Intermediate
Court of Appeals: 13
Legally, of course, the lack of proper venue was deemed waived by the
petitioners when they failed to invoke it in their original motion to dismiss.
Even so, the motivation of the private respondent should have been taken
into account by both the trial judge and the respondent court in arriving at
their decisions.
The petitioner also invokes KLM Royal Dutch Airlines v. RTC, 14 a decision of
our Court of Appeals, where it was held that Article 28(1) is a venue provision.
However, the private respondent avers that this was in effect reversed by the
case of Aranas v. United Airlines, 15 where the same court held that Article
28(1) is a jurisdictional provision. Neither of these cases is binding on this
Court, of course, nor was either of them appealed to us. Nevertheless, we
here express our own preference for the later case of Aranas insofar as its
pronouncements on jurisdiction conform to the judgment we now make in
this petition.
C. The petitioner claims that the lower court erred in not ruling that
under Article 28(1) of the Warsaw Convention, this case was properly
filed in the Philippines, because Manila was the destination of the
plaintiff.
The Petitioner contends that the facts of this case are analogous to those
in Aanestad v. Air Canada. 16 In that case, Mrs. Silverberg purchased a round-
trip ticket from Montreal to Los Angeles and back to Montreal. The date and
time of departure were specified but not of the return flight. The plane
crashed while on route from Montreal to Los Angeles, killing Mrs. Silverberg.
Her administratrix filed an action for damages against Air Canada in the U.S.
District Court of California. The defendant moved to dismiss for lack of
jurisdiction but the motion was denied thus:
. . . It is evident that the contract entered into between Air Canada and Mrs.
Silverberg as evidenced by the ticket booklets and the Flight Coupon No. 1,
was a contract for Air Canada to carry Mrs. Silverberg to Los Angeles on a
certain flight, a certain time and a certain class, but that the time for her to
return remained completely in her power. Coupon No. 2 was only a
continuing offer by Air Canada to give her a ticket to return to Montreal
between certain dates. . . .
The only conclusion that can be reached then, is that "the place of
destination" as used in the Warsaw Convention is considered by both the
Canadian C.T.C. and the United States C.A.B. to describe at least two "places
of destination," viz., the "place of destination" of a particular flight either an
"outward destination" from the "point of origin" or from the "outward point
of destination" to any place in Canada.
Thus the place of destination under Art. 28 and Art. 1 of the Warsaw
Convention of the flight on which Mrs. Silverberg was killed, was Los Angeles
according to the ticket, which was the contract between the parties and the
suit is properly filed in this Court which has jurisdiction.
The Petitioner avers that the present case falls squarely under the above
ruling because the date and time of his return flight to San Francisco were, as
in the Aanestad case, also left open. Consequently, Manila and not San
Francisco should be considered the petitioner's destination.
The private respondent for its part invokes the ruling in Butz v. British
Airways, 17 where the United States District Court (Eastern District of
Pennsylvania) said:
. . . Although the authorities which addressed this precise issue are not
extensive, both the cases and the commentators are almost unanimous in
concluding that the "place of destination" referred to in the Warsaw
Convention "in a trip consisting of several parts . . . is the ultimate
destination that is accorded treaty jurisdiction." . . .
But apart from that distinguishing feature, I cannot agree
with the Court's analysis in Aanestad; whether the return portion of the ticket
is characterized as an option or a contract, the carrier was legally bound to
transport the passenger back to the place of origin within the prescribed time
and. the passenger for her part agreed to pay the fare and, in fact, did pay
the fare. Thus there was mutuality of obligation and a binding contract of
carriage, The fact that the passenger could forego her rights under the
contract does not make it any less a binding contract. Certainly, if the parties
did not contemplate the return leg of the journey, the passenger would not
have paid for it and the carrier would not have issued a round trip ticket.
We agree with the latter case. The place of destination, within the meaning
of the Warsaw Convention, is determined by the terms of the contract of
carriage or, specifically in this case, the ticket between the passenger and the
carrier. Examination of the petitioner's ticket shows that his ultimate
destination is San Francisco. Although the date of the return flight was left
open, the contract of carriage between the parties indicates that NOA was
bound to transport the petitioner to San Francisco from Manila. Manila
should therefore be considered merely an agreed stopping place and not the
destination.
The petitioner submits that the Butz case could not have overruled the
Aanestad case because these decisions are from different jurisdictions. But
that is neither here nor there. In fact, neither of these cases is controlling on
this Court. If we have preferred the Butz case, it is because, exercising our
own freedom of choice, we have decided that it represents the better, and
correct, interpretation of Article 28(1).
Article 1(2) also draws a distinction between a "destination" and an "agreed
stopping place." It is the "destination" and not an "agreed stopping place"
that controls for purposes of ascertaining jurisdiction under the Convention.
The contract is a single undivided operation, beginning with the place of
departure and ending with the ultimate destination. The use of the singular
in this expression indicates the understanding of the parties to the
Convention that every contract of carriage has one place of departure and
one place of destination. An intermediate place where the carriage may be
broken is not regarded as a "place of destination."
D. The petitioner claims that the lower court erred in not ruling that
under Art. 28(1) of the Warsaw Convention, this case was properly
filed in the Philippines because the defendant has its domicile in the
Philippines.
The petitioner argues that the Warsaw Convention was originally written in
French and that in interpreting its provisions, American courts have taken the
broad view that the French legal meaning must govern. 18 In French, he says,
the "domicile" of the carrier means every place where it has a branch office.
The private respondent notes, however, that in Compagnie Nationale Air
France vs. Giliberto, 19 it was held:
The plaintiffs' first contention is that Air France is domiciled in the United
States. They say that the domicile of a corporation includes any country
where the airline carries on its business on "a regular and substantial basis,"
and that the United States qualifies under such definition. The meaning of
domicile cannot, however, be so extended. The domicile of a corporation is
customarily regarded as the place where it is incorporated, and the courts
have given the meaning to the term as it is used in article 28(1) of the
Convention. (See Smith v. Canadian Pacific Airways, Ltd. (2d Cir. 1971), 452
F2d 798, 802; Nudo v. Societe Anonyme Belge d' Exploitation de la Navigation
Aerienne Sabena Belgian World Airlines (E.D. pa. 1962). 207 F. Supp, 191;
Karfunkel v. Compagnie Nationale Air France (S.D.N.Y. 1977), 427 F. Suppl.
971, 974). Moreover, the structure of article 28(1), viewed as a whole, is also
incompatible with the plaintiffs' claim. The article, in stating that places of
business are among the bases of the jurisdiction, sets out two places where
an action for damages may be brought; the country where the carrier's
principal place of business is located, and the country in which it has a place
of business through which the particular contract in question was made, that
is, where the ticket was bought, Adopting the plaintiffs' theory would at a
minimum blur these carefully drawn distinctions by creating a third
intermediate category. It would obviously introduce uncertainty into
litigation under the article because of the necessity of having to determine,
and without standards or criteria, whether the amount of business done by a
carrier in a particular country was "regular" and "substantial." The plaintiff's
request to adopt this basis of jurisdiction is in effect a request to create a new
jurisdictional standard for the Convention.
Furthermore, it was argued in another case 20 that:
. . . In arriving at an interpretation of a treaty whose sole official language is
French, are we bound to apply French law? . . . We think this question and
the underlying choice of law issue warrant some discussion
. . . We do not think this statement can be regarded as a conclusion that
internal French law is to be "applied" in the choice of law sense, to determine
the meaning and scope of the Convention's terms. Of course, French legal
usage must be considered in arriving at an accurate English translation of the
French. But when an accurate English translation is made and agreed upon,
as here, the inquiry into meaning does not then revert to a quest for a past
or present French law to be "applied" for revelation of the proper scope of
the terms. It does not follow from the fact that the treaty is written in French
that in interpreting it, we are forever chained to French law, either as it
existed when the treaty was written or in its present state of development.
There is no suggestion in the treaty that French law was intended to govern
the meaning of Warsaw's terms, nor have we found any indication to this
effect in its legislative history or from our study of its application and
interpretation by other courts. Indeed, analysis of the cases indicates that the
courts, in interpreting and applying the Warsaw Convention, have, not
considered themselves bound to apply French law simply because the
Convention is written in French. . . .

We agree with these rulings.
Notably, the domicile of the carrier is only one of the places where the
complaint is allowed to be filed under Article 28(1). By specifying the three
other places, to wit, the principal place of business of the carrier, its place of
business where the contract was made, and the place of destination, the
article clearly meant that these three other places were not comprehended
in the term "domicile."
D. The petitioner claims that the lower court erred in not ruling that Art. 28(1)
of the Warsaw Convention does not apply to actions based on tort.
The petitioner alleges that the gravamen of the complaint is that private
respondent acted arbitrarily and in bad faith, discriminated against the
petitioner, and committed a willful misconduct because it canceled his
confirmed reservation and gave his reserved seat to someone who had no
better right to it. In short. the private respondent committed a tort.
Such allegation, he submits, removes the present case from the coverage of
the Warsaw Convention. He argues that in at least two American cases, 21 it
was held that Article 28(1) of the Warsaw Convention does not apply if the
action is based on tort.
This position is negated by Husserl v. Swiss Air Transport Company, 22 where
the article in question was interpreted thus:
. . . Assuming for the present that plaintiff's claim is "covered" by Article 17,
Article 24 clearly excludes any relief not provided for in the Convention as
modified by the Montreal Agreement. It does not, however, limit the kind of
cause of action on which the relief may be founded; rather it provides that
any action based on the injuries specified in Article 17 "however
founded," i.e., regardless of the type of action on which relief is founded, can
only be brought subject to the conditions and limitations established by the
Warsaw System. Presumably, the reason for the use of the phrase "however
founded," in two-fold: to accommodate all of the multifarious bases on which
a claim might be founded in different countries, whether under code law or
common law, whether under contract or tort, etc.; and to include all bases on
which a claim seeking relief for an injury might be founded in any one country.
In other words, if the injury occurs as described in Article 17, any relief
available is subject to the conditions and limitations established by the
Warsaw System, regardless of the particular cause of action which forms the
basis on which a plaintiff could seek
relief . . .
The private respondent correctly contends that the allegation of willful
misconduct resulting in a tort is insufficient to exclude the case from the
comprehension of the Warsaw Convention. The petitioner has apparently
misconstrued the import of Article 25(l) of the Convention, which reads as
follows:
Art. 25 (1). The carrier shall not be entitled to avail himself of the provisions
of this Convention which exclude or limit his liability. if the damage is caused
by his willful misconduct or by such default on his part as, in accordance with
the law of the court to which the case is submitted, is considered to be
equivalent to willful misconduct.
It is understood under this article that the court called upon to determine the
applicability of the limitation provision must first be vested with the
appropriate jurisdiction. Article 28(1) is the provision in the Convention which
defines that jurisdiction. Article 22 23 merely fixes the monetary ceiling for
the liability of the carrier in cases covered by the Convention. If the carrier is
indeed guilty of willful misconduct, it can avail itself of the limitations set forth
in this article. But this can be done only if the action has first been
commenced properly under the rules on jurisdiction set forth in Article 28(1).
THE ISSUE OF PROTECTION TO MINORS
The petitioner calls our attention to Article 24 of the Civil Code, which states:
Art. 24. In all contractual property or other relations, when one of the parties
is at a disadvantage on account of his moral dependence, ignorance,
indigence, mental weakness, tender age or other handicap, the courts must
be vigilant for his protection.
Application of this article to the present case is misplaced. The above
provision assumes that the court is vested with jurisdiction to rule in favor of
the disadvantaged minor, As already explained, such jurisdiction is absent in
the case at bar.
CONCLUSION
A number of countries have signified their concern over the problem of
citizens being denied access to their own courts because of the restrictive
provision of Article 28(1) of the Warsaw Convention. Among these is the
United States, which has proposed an amendment that would enable the
passenger to sue in his own domicile if the carrier does business in that
jurisdiction. The reason for this proposal is explained thus:

In the event a US citizen temporarily residing abroad purchases a Rome to

New York to Rome ticket on a foreign air carrier which is generally subject to
the jurisdiction of the US, Article 28 would prevent that person from suing
the carrier in the US in a "Warsaw Case" even though such a suit could be
brought in the absence of the Convention.

The proposal was incorporated in the Guatemala Protocol amending the

Warsaw Convention, which was adopted at Guatemala City on March 8,
1971. 24 But it is still ineffective because it has not yet been ratified by the
required minimum number of contracting parties. Pending such ratification,
the petitioner will still have to file his complaint only in any of the four places
designated by Article 28(1) of the Warsaw Convention.

The proposed amendment bolsters the ruling of this Court that a citizen does
not necessarily have the right to sue in his own courts simply because the
defendant airline has a place of business in his country.

The Court can only sympathize with the petitioner, who must prosecute his
claims in the United States rather than in his own country at least
inconvenience. But we are unable to grant him the relief he seeks because
we are limited by the provisions of the Warsaw Convention which continues
to bind us. It may not be amiss to observe at this point that the mere fact that
he will have to litigate in the American courts does not necessarily mean he
will litigate in vain. The judicial system of that country in known for its sense
of fairness and, generally, its strict adherence to the rule of law.

WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so

ordered.
LIABILITIES UNDER THE CONVENTION
G.R. No. L-22425 August 31, 1965
NORTHWEST AIRLINES, INC., petitioner, vs. NICOLAS L. CUENCA and
COURT OF APPEALS (SPECIAL SIXTH DIVISION), respondents.
CONCEPCION, J.:
This is an action for damages for alleged breach of contract. After appropriate
proceedings the Court of First Instance of Manila, in which the case was
originally filed, rendered judgment sentencing defendant Northwest Airlines,
Inc. — hereinafter referred to as petitioner — to pay to plaintiff Cuenca
— hereinafter referred to as respondent — the sum of P20,000 as moral
damages, together with the sum of P5,000 as exemplary damages, with
legal interest thereon from the date of the filing of complaint," December
12, 1959, "until fully paid, plus the further sum of P2,000 as attorney's fees
and expenses of litigation." On appeal taken by petitioner, said decision was
affirmed by the Court of Appeals, except as to the P5,000.00 exemplary
damages, which was eliminated, and the P20,000.00 award for moral
damages, which was converted into nominal damages. The case is now before
us on petition for review by certiorari filed by petitioner, upon the ground
that the lower court has erred: (1) in holding that the Warsaw Convention of
October 12, 1929, relative to transportation by air is not in force in the
Philippines; (2) in not holding that respondent has no cause of action; and (3)
in awarding P20,000 as nominal damages.
We deem it unnecessary to pass upon the first assignment of error because
the same is the basis of the second assignment of error, and the latter is
devoid of merit, even if we assumed the former to be well-taken. Indeed the
second assignment of error is predicated upon Articles 17, 18 and 19 of said
Convention, reading:
ART. 17. The carrier shall be liable for damages sustained in the event of the
death or wounding of a passenger or any other bodily injury suffered by a
passenger, if the accident which caused the damage so sustained took place
on board the aircraft or in the course of any of the operations of embarking
or disembarking.
ART. 18. (1) The carrier shall be liable for damage sustained in the event of
the destruction or loss of, or of damage to, any checked baggage, or any
goods, if the occurrence which caused the damage so sustained took place
during the transportation by air.
(2) The transportation by air within the meaning of the preceding paragraph
shall comprise the period during which the baggage or goods are in charge of
the carrier, whether in an airport or on board an aircraft, or, in the case of a
landing outside an airport, in any place whatsoever.
(3) The period of the transportation by air shall not extend to any
transportation by land, by sea, or by river performed outside an airport. If,
however, such transportation takes place in the performance of a contract
for transportation by air, for the purpose of loading, delivery, or
transhipment, any damage is presumed, subject to proof to the contrary, to
have been the result of an event which took place during the transportation
by air.
ART. 19. The carrier shall be liable for damage occasioned by delay in the
transportation by air of passengers, baggage, or goods.
Petitioner argues that pursuant to those provisions, an air "carrier is liable
only" in the event of death of a passenger or injury suffered by him, or of
destruction or loss of, or damage to any checked baggage or any goods, or of
delay in the transportation by air of passengers, baggage or goods. This
pretense is not borne out by the language of said Articles. The same merely
declare the carrier liable for damages in the enumerated cases, if the
conditions therein specified are present. Neither said provisions nor others in
the aforementioned Convention regulate or exclude liability for other
breaches of contract by the carrier. Under petitioner's theory, an air carrier
would be exempt from any liability for damages in the event of its absolute
refusal, in bad faith, to comply with a contract of carriage, which is absurd.
The third assignment of error is based upon Medina vs. Cresencia (52 Off.
Gaz. 4606), and Quijano vs. Philippine Air Lines (CA-G.R. No. 21804-R). Neither
case is, however, in point, aside from the fact that the latter is not controlling
upon us. In the first case, this Court eliminated a P10,000 award for nominal
damages, because the aggrieved party had already been awarded P6,000 as
compensatory damages, P30,000 as moral damages and P10,000 as
exemplary damages, and "nominal damages cannot co-exist with
compensatory damages." In the case at bar, the Court of Appeals has
adjudicated no such compensatory, moral and exemplary damages to
respondent herein.
Moreover, there are special reasons why the P20,000.00 award in favor of
respondent herein is justified, even if said award were characterized as
nominal damages. When his contract of carriage was violated by the
petitioner, respondent held the office of Commissioner of Public Highways of
the Republic of the Philippines. Having boarded petitioner's plane in Manila
with a first class ticket to Tokyo, he was, upon arrival at Okinawa, transferred
to the tourist class compartment. Although he revealed that he was traveling
in his official capacity as official delegate of the Republic to a conference in
Tokyo, an agent of petitioner rudely compelled him in the presence of other
passengers to move, over his objection, to the tourist class, under threat of
otherwise leaving him in Okinawa. In order to reach the conference on time,
respondent had no choice but to obey.

It is true that said ticket was marked "W/L," but respondent's attention was
not called thereto. Much less was he advised that "W/L" meant "wait listed."
Upon the other hand, having paid the first class fare in full and having been
given first class accommodation as he took petitioner's plane in Manila,
respondent was entitled to believe that this was a confirmation of his first
class reservation and that he would keep the same until his ultimate
destination, Tokyo. Then, too, petitioner has not tried to explain or even
alleged that the person to whom respondent's first class seat was given had
a better right thereto. In other words, since the offense had been committed
with full knowledge of the fact that respondent was an official representative
of the Republic of the Philippines, the sum of P20,000 awarded as damages
may well be considered as merely nominal. At any rate, considering that
petitioner's agent had acted in a wanton, reckless and oppressive manner,
said award may also be considered as one for exemplary damages.

WHEREFORE, the decision appealed from is hereby affirmed, with costs

against the petitioner. It is so ordered.
LIABILITIES UNDER THE CONVENTION
[G.R. No. 71929 : December 4, 1990.]
192 SCRA 9
ALITALIA, Petitioner, vs. INTERMEDIATE APPELLATE COURT and FELIPA E.
PABLO, Respondents.
DECISION
NARVASA, J.:
Dr. Felipa Pablo — an associate professor in the University of the Philippines, 1
and a research grantee of the Philippine Atomic Energy Agency — was invited
to take part at a meeting of the Department of Research and Isotopes of the
Joint FAO-IAEA Division of Atomic Energy in Food and Agriculture of the United
Nations in Ispra, Italy. 2 She was invited in view of her specialized knowledge in
"foreign substances in food and the agriculture environment." She accepted the
invitation, and was then scheduled by the organizers, to read a paper on "The Fate of
Radioactive Fusion Products Contaminating Vegetable Crops." 3 The program
announced that she would be the second speaker on the first day of the meeting. 4
To fulfill this engagement, Dr. Pablo booked passage on petitioner airline, ALITALIA.
She arrived in Milan on the day before the meeting in accordance with the itinerary
and time table set for her by ALITALIA. She was however told by the ALITALIA
personnel there at Milan that her luggage was "delayed inasmuch as the same . . .
(was) in one of the succeeding flights from Rome to Milan." 5 Her luggage consisted
of two (2) suitcases: one contained her clothing and other personal items; the other,
her scientific papers, slides and other research material. But the other flights arriving
from Rome did not have her baggage on board.
By then feeling desperate, she went to Rome to try to locate her bags herself. There,
she inquired about her suitcases in the domestic and international airports, and filled
out the forms prescribed by ALITALIA for people in her predicament. However, her
baggage could not be found. Completely distraught and discouraged, she returned to
Manila without attending the meeting in Ispra, Italy. : AND
Once back in Manila she demanded that ALITALIA make reparation for the damages
thus suffered by her. ALITALIA offered her "free airline tickets to compensate her for
any alleged damages. . . ." She rejected the offer, and forthwith commenced the
action 6 which has given rise to the present appellate proceedings.
As it turned out, Prof. Pablo's suitcases were in fact located and forwarded to Ispra,
7 Italy, but only on the day after her scheduled appearance and participation at the
U.N. meeting there. 8 Of course Dr. Pablo was no longer there to accept delivery; she
was already on her way home to Manila. And for some reason or other, the suitcases
were not actually restored to Prof. Pablo by ALITALIA until eleven (11) months later,
and four (4) months after institution of her action.
After appropriate proceedings and trial, the Court of First Instance rendered
judgment in Dr. Pablo's favor: 10
"(1) Ordering the defendant (ALITALIA) to pay . . . (her) the sum of TWENTY
THOUSAND PESOS (P20,000.00), Philippine Currency, by way of nominal damages;
(2) Ordering the defendant to pay . . . (her) the sum of FIVE THOUSAND PESOS
(P5,000.00), Philippine Currency, as and for attorney's fees; (and)
(3) Ordering the defendant to pay the costs of the suit."
ALITALIA appealed to the Intermediate Appellate Court but failed to obtain a reversal
of the judgment. 11 Indeed, the Appellate Court not only affirmed the Trial Court's
decision but also increased the award of nominal damages payable by ALITALIA to
P40,000.00. 12 That increase it justified as follows:
"Considering the circumstances, as found by the Trial Court and the negligence
committed by defendant, the amount of P20,000.00 under present inflationary
conditions as awarded . . . to the plaintiff as nominal damages, is too little to make
up for the plaintiff's frustration and disappointment in not being able to appear at
said conference; and for the embarrassment and humiliation she suffered from the
academic community for failure to carry out an official mission for which she was
singled out by the faculty to represent her institution and the country. After weighing
carefully all the considerations, the amount awarded to the plaintiff for nominal
damages and attorney's fees should be increased to the cost of her round trip air fare
or at the present rate of peso to the dollar at P40,000,00."
ALITALIA has appealed to this Court on Certiorari. Here, it seeks to make basically the
same points it tried to make before the Trial Court and the Intermediate Appellate
Court, i.e.:
1) that the Warsaw Convention should have been applied to limit ALITALIA'S liability;
and
2) that there is no warrant in fact or in law for the award to Dr. Pablo of nominal
damages and attorney's fees. 14
In addition, ALITALIA postulates that it was error for the Intermediate Appellate Court
to have refused to pass on all the assigned errors and in not stating the facts and the
law on which its decision is based. 15
Under the Warsaw Convention, 16 an air carrier is made liable for damages for:
1) the death, wounding or other bodily injury of a passenger if the accident causing
it took place on board the aircraft or in the course of its operations of embarking or
disembarking; 17
2) the destruction or loss of, or damage to, any registered luggage or goods, if the
occurrence causing it took place during the carriage by air;" 18 and
3) delay in the transportation by air of passengers, luggage or goods. 19
In these cases, it is provided in the Convention that the "action for damages,
however, founded, can only be brought subject to conditions and limits set out"
therein. 20
The Convention also purports to limit the liability of the carriers in the following
manner:
1. In the carriage of passengers the liability of the carrier for each passenger is limited
to the sum of 250,000 francs . . . Nevertheless, by special contract, the carrier and
the passenger may agree to a higher limit of liability.: nad
2. a) In the carriage of registered baggage and of cargo, the liability of the carrier is
limited to a sum of 250 francs per kilogramme, unless the passenger or consignor has
made, at the time when the package was handed over to the carrier, a special
declaration of interest in delivery at destination and has paid a supplementary sum if
the case so requires. In that case the carrier will be liable to pay a sum not exceeding
the declared sum, unless he proves that sum is greater than the actual value to the
consignor at delivery.
b) In the case of loss, damage or delay of part of registered baggage or cargo, or of
any object contained therein, the weight to be taken into consideration in
determining the amount to which the carrier's liability is limited shall be only the total
weight of the package or packages concerned. Nevertheless, when the loss, damage
or delay of a part of the registered baggage or cargo, or of an object contained
therein, affects the value of other packages covered by the same baggage check or
the same air way bill, the total weight of such package or packages shall also be taken
into consideration in determining the limit of liability.
4. As regards objects of which the passenger takes charge himself the liability
of the carrier is limited to 5000 francs per passenger.
5.
4. The limits prescribed . . shall not prevent the court from awarding, in accordance
with its own law, in addition, the whole or part of the court costs and of the other
expenses of litigation incurred by the plaintiff. The foregoing provision shall not apply
if the amount of the damages awarded, excluding court costs and other expenses of
the litigation, does not exceed the sum which the carrier has offered in writing to the
plaintiff within a period of six months from the date of the occurrence causing the
damage, or before the commencement of the action, if that is later.
The Warsaw Convention however denies to the carrier availment "of the provisions
which exclude or limit his liability, if the damage is caused by his wilful misconduct or
by such default on his part as, in accordance with the law of the court seized of the
case, is considered to be equivalent to wilful misconduct," or "if the damage is
(similarly) caused . . by any agent of the carrier acting within the scope of his
employment." 22 The Hague Protocol amended the Warsaw Convention by
removing the provision that if the airline took all necessary steps to avoid the
damage, it could exculpate itself completely, 23 and declaring the stated limits of
liability not applicable "if it is proved that the damage resulted from an act or
omission of the carrier, its servants or agents, done with intent to cause damage or
recklessly and with knowledge that damage would probably result." The same
deletion was effected by the Montreal Agreement of 1966, with the result that a
passenger could recover unlimited damages upon proof of wilful misconduct.
The Convention does not thus operate as an exclusive enumeration of the instances
of an airline's liability, or as an absolute limit of the extent of that liability. Such a
proposition is not borne out by the language of the Convention, as this Court has
now, and at an earlier time, pointed out. 25 Moreover, slight reflection readily leads
to the conclusion that it should be deemed a limit of liability only in those cases where
the cause of the death or injury to person, or destruction, loss or damage to property
or delay in its transport is not attributable to or attended by any wilful misconduct,
bad faith, recklessness, or otherwise improper conduct on the part of any official or
employee for which the carrier is responsible, and there is otherwise no special or
extraordinary form of resulting injury. The Convention's provisions, in short, do not
"regulate or exclude liability for other breaches of contract by the carrier" 26 or
misconduct of its officers and employees, or for some particular or exceptional type
of damage. Otherwise, "an air carrier would be exempt from any liability for damages
in the event of its absolute refusal, in bad faith, to comply with a contract of carriage,
which is absurd." 27 Nor may it for a moment be supposed that if a member of the
aircraft complement should inflict some physical injury on a passenger, or maliciously
destroy or damage the latter's property, the Convention might successfully be
pleaded as the sole gauge to determine the carrier's liability to the passenger. Neither
may the Convention be invoked to justify the disregard of some extraordinary sort of
damage resulting to a passenger and preclude recovery therefor beyond the limits
set by said Convention. It is in this sense that the Convention has been applied, or
ignored, depending on the peculiar facts presented by each case.:-cralaw
In Pan American World Airways, Inc. v. I.A.C., 28 for example, the Warsaw
Convention was applied as regards the limitation on the carrier's liability, there being
a simple loss of baggage without any otherwise improper conduct on the part of the
officials or employees of the airline or other special injury sustained by the passenger.
On the other hand, the Warsaw Convention has invariably been held inapplicable, or
as not restrictive of the carrier's liability, where there was satisfactory evidence of
malice or bad faith attributable to its officers and employees. 29 Thus, an air carrier
was sentenced to pay not only compensatory but also moral and exemplary damages,
and attorney's fees, for instance, where its employees rudely put a passenger holding
a first-class ticket in the tourist or economy section, 30 or ousted a brown Asiatic
from the plane to give his seat to a white man, 31 or gave the seat of a passenger
with a confirmed reservation to another, 32 or subjected a passenger to extremely violated or invaded by it — absent any claim for actual or compensatory
rude, even barbaric treatment, as by calling him a "monkey." 33 damages, the prayer thereof having been voluntarily deleted by Dr. Pablo upon
the return to her of her baggage — necessarily raised the issue of nominal
In the case at bar, no bad faith or otherwise improper conduct may be ascribed to damages.: rd
the employees of petitioner airline; and Dr. Pablo's luggage was eventually returned
to her, belatedly, it is true, but without appreciable damage. The fact is, nevertheless, This Court also agrees that respondent Court of Appeals correctly awarded attorney's
that some special species of injury was caused to Dr. Pablo because petitioner fees to Dr. Pablo, and the amount of P5,000.00 set by it is reasonable in the premises.
ALITALIA misplaced her baggage and failed to deliver it to her at the time appointed The law authorizes recovery of attorney's fees inter alia where, as here, "the
— a breach of its contract of carriage, to be sure — with the result that she defendant's act or omission has compelled the plaintiff to litigate with third persons
was unable to read the paper and make the scientific presentation (consisting of or to incur expenses to protect his interest," 34 or "where the court deems it just
slides, autoradiograms or films, tables and tabulations) that she had painstakingly and equitable." 35
labored over, at the prestigious international conference, to attend which she had
traveled hundreds of miles, to her chagrin and embarrassment and the WHEREFORE, no error being perceived in the challenged decision of the Court of
disappointment and annoyance of the organizers. She felt, not unreasonably, that Appeals, it appearing on the contrary to be entirely in accord with the facts and the
the invitation for her to participate at the conference, extended by the Joint law, said decision is hereby AFFIRMED, with costs against the petitioner.
FAO/IAEA Division of Atomic Energy in Food and Agriculture of the United Nations, SO ORDERED.
was a singular honor not only to herself, but to the University of the Philippines and
the country as well, an opportunity to make some sort of impression among her
colleagues in that field of scientific activity. The opportunity to claim this honor or
distinction was irretrievably lost to her because of Alitalia's breach of its contract.
Apart from this, there can be no doubt that Dr. Pablo underwent profound distress
and anxiety, which gradually turned to panic and finally despair, from the time she
learned that her suitcases were missing up to the time when, having gone to Rome,
she finally realized that she would no longer be able to take part in the conference.
As she herself put it, she "was really shocked and distraught and confused."

Certainly, the compensation for the injury suffered by Dr. Pablo cannot under the
circumstances be restricted to that prescribed by the Warsaw Convention for delay
in the transport of baggage.

She is not, of course, entitled to be compensated for loss or damage to her luggage.
As already mentioned, her baggage was ultimately delivered to her in Manila, tardily
but safely. She is however entitled to nominal damages — which, as the law says,
is adjudicated in order that a right of the plaintiff, which has been violated or
invaded by the defendant, may be vindicated and recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered — and this Court agrees
that the respondent Court of Appeals correctly set the amount thereof at
P40,000.00. As to the purely technical argument that the award to her of such
nominal damages is precluded by her omission to include a specific claim therefor in
her complaint, it suffices to draw attention to her general prayer, following her plea
for moral and exemplary damages and attorney's fees, "for such other and further
just and equitable relief in the premises," which certainly is broad enough to
comprehend an application as well for nominal damages. Besides, petitioner should
have realized that the explicit assertion, and proof, that Dr. Pablo's right had been
LIMITATIONS ON LIABILITY
G.R. No. 70462 August 11, 1988
PAN AMERICAN WORLD AIRWAYS, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT, RENE V. PANGAN, SOTANG BASTOS
PRODUCTIONS and ARCHER PRODUCTIONS, respondents.
Guerrero & Torres for petitioner.
Jose B. Layug for private respondents.
CORTES, J.:
Before the Court is a petition filed by an international air carrier seeking to
limit its liability for lost baggage, containing promotional and advertising
materials for films to be exhibited in Guam and the U.S.A., clutch bags, barong
tagalogs and personal belongings, to the amount specified in the airline ticket
absent a declaration of a higher valuation and the payment of additional
charges.
The undisputed facts of the case, as found by the trial court and adopted by
the appellate court, are as follows:
On April 25, 1978, plaintiff Rene V. Pangan, president and general manager
of the plaintiffs Sotang Bastos and Archer Production while in San Francisco,
Califonia and Primo Quesada of Prime Films, San Francisco, California,
entered into an agreement (Exh. A) whereby the former, for and in
consideration of the amount of US $2,500.00 per picture, bound himself to
supply the latter with three films. 'Ang Mabait, Masungit at ang Pangit,' 'Big
Happening with Chikiting and Iking,' and 'Kambal Dragon' for exhibition in the
United States. It was also their agreement that plaintiffs would provide the
necessary promotional and advertising materials for said films on or before
May 30, 1978.
On his way home to the Philippines, plaintiff Pangan visited Guam where he
contacted Leo Slutchnick of the Hafa Adai Organization. Plaintiff Pangan
likewise entered into a verbal agreement with Slutchnick for the exhibition of
two of the films above-mentioned at the Hafa Adai Theater in Guam on May
30, 1978 for the consideration of P7,000.00 per picture (p. 11, tsn, June 20,
1979). Plaintiff Pangan undertook to provide the necessary promotional and
advertising materials for said films on or before the exhibition date on May
30,1978.
By virtue of the above agreements, plaintiff Pangan caused the preparation
of the requisite promotional handbills and still pictures for which he paid the
total sum of P12,900.00 (Exhs. B, B-1, C and C1). Likewise in preparation for
his trip abroad to comply with his contracts, plaintiff Pangan purchased
fourteen clutch bags, four capiz lamps and four barong tagalog, with a total
value of P4,400.00 (Exhs. D, D-1, E, and F).
On May 18, 1978, plaintiff Pangan obtained from defendant Pan Am's Manila
Office, through the Your Travel Guide, an economy class airplane ticket with
No. 0269207406324 (Exh. G) for passage from Manila to Guam on
defendant's Flight No. 842 of May 27,1978, upon payment by said plaintiff of
the regular fare. The Your Travel Guide is a tour and travel office owned and
managed by plaintiffs witness Mila de la Rama.
On May 27, 1978, two hours before departure time plaintiff Pangan was at
the defendant's ticket counter at the Manila International Airport and
presented his ticket and checked in his two luggages, for which he was given
baggage claim tickets Nos. 963633 and 963649 (Exhs. H and H-1). The two
luggages contained the promotional and advertising materials, the clutch
bags, barong tagalog and his personal belongings. Subsequently, Pangan was
informed that his name was not in the manifest and so he could not take
Flight No. 842 in the economy class. Since there was no space in the economy
class, plaintiff Pangan took the first class because he wanted to be on time in
Guam to comply with his commitment, paying an additional sum of $112.00.
When plaintiff Pangan arrived in Guam on the date of May 27, 1978, his two
luggages did not arrive with his flight, as a consequence of which his
agreements with Slutchnick and Quesada for the exhibition of the films in
Guam and in the United States were cancelled (Exh. L). Thereafter, he filed a
written claim (Exh. J) for his missing luggages.
Upon arrival in the Philippines, Pangan contacted his lawyer, who made the
necessary representations to protest as to the treatment which he received
from the employees of the defendant and the loss of his two luggages (Exh.
M, O, Q, S, and T). Defendant Pan Am assured plaintiff Pangan that his
grievances would be investigated and given its immediate consideration
(Exhs. N, P and R). Due to the defendant's failure to communicate with
Pangan about the action taken on his protests, the present complaint was
filed by the plaintiff. (Pages 4-7, Record On Appeal). [Rollo, pp. 27-29.]
On the basis of these facts, the Court of First Instance found petitioner liable
and rendered judgment as follows:
(1) Ordering defendant Pan American World Airways, Inc. to pay all the
plaintiffs the sum of P83,000.00, for actual damages, with interest thereon at
the rate of 14% per annum from December 6, 1978, when the complaint was
filed, until the same is fully paid, plus the further sum of P10,000.00 as
attorney's fees;
(2) Ordering defendant Pan American World Airways, Inc. to pay plaintiff
Rene V. Pangan the sum of P8,123.34, for additional actual damages, with
interest thereon at the rate of 14% per annum from December 6, 1978, until
the same is fully paid;
(3) Dismissing the counterclaim interposed by defendant Pan American
World Airways, Inc.; and
(4) Ordering defendant Pan American World Airways, Inc. to pay the costs of
suit. [Rollo, pp. 106-107.]
On appeal, the then Intermediate Appellate Court affirmed the trial court
decision.
Hence, the instant recourse to this Court by petitioner.
The petition was given due course and the parties, as required, submitted
their respective memoranda. In due time the case was submitted for
decision.
In assailing the decision of the Intermediate Appellate Court petitioner
assigned the following errors:
1. The respondent court erred as a matter of law in affirming the trial court's
award of actual damages beyond the limitation of liability set forth in the
Warsaw Convention and the contract of carriage.
2. The respondent court erred as a matter of law in affirming the trial court's
award of actual damages consisting of alleged lost profits in the face of this
Court's ruling concerning special or consequential damages as set forth
in Mendoza v. Philippine Airlines [90 Phil. 836 (1952).]
The assigned errors shall be discussed seriatim
1. The airline ticket (Exh. "G') contains the following conditions:
NOTICE
If the passenger's journey involves an ultimate destination or stop in a
country other than the country of departure the Warsaw Convention may be
applicable and the Convention governs and in most cases limits the liability
of carriers for death or personal injury and in respect of loss of or damage to
baggage. See also notice headed "Advice to International Passengers on
Limitation of Liability.
CONDITIONS OF CONTRACT
1. As used in this contract "ticket" means this passenger ticket and baggage
check of which these conditions and the notices form part, "carriage" is
equivalent to "transportation," "carrier" means all air carriers that carry or
undertake to carry the passenger or his baggage hereunder or perform any
other service incidental to such air carriage. "WARSAW CONVENTION" means
the convention for the Unification of Certain Rules Relating to International
Carriage by Air signed at Warsaw, 12th October 1929, or that Convention as
amended at The Hague, 28th September 1955, whichever may be applicable.
2. Carriage hereunder is subject to the rules and limitations relating to liability
established by the Warsaw Convention unless such carriage is not
"international carriage" as defined by that Convention.
3. To the extent not in conflict with the foregoing carriage and other services
performed by each carrier are subject to: (i) provisions contained in this
ticket, (ii) applicable tariffs, (iii) carrier's conditions of carriage and related
regulations which are made part hereof (and are available on application at
the offices of carrier), except in transportation between a place in the United
States or Canada and any place outside thereof to which tariffs in force in
those countries apply.
xxx xxx xxx
NOTICE OF BAGGAGE LIABILITY LIMITATIONS
Liability for loss, delay, or damage to baggage is limited as follows unless a
higher value is declared in advance and additional charges are paid: (1)for
most international travel (including domestic portions of international
journeys) to approximately $9.07 per pound ($20.00 per kilo) for checked
baggage and $400 per passenger for unchecked baggage: (2) for travel wholly
between U.S. points, to $750 per passenger on most carriers (a few have
lower limits). Excess valuation may not be declared on certain types of
valuable articles. Carriers assume no liability for fragile or perishable articles.
Further information may be obtained from the carrier. [Emphasis supplied.].
On the basis of the foregoing stipulations printed at the back of the ticket,
petitioner contends that its liability for the lost baggage of private respondent
Pangan is limited to $600.00 ($20.00 x 30 kilos) as the latter did not declare a
higher value for his baggage and pay the corresponding additional charges.
To support this contention, petitioner cites the case of Ong Yiu v. Court of
Appeals [G.R. No. L-40597, June 29, 1979, 91 SCRA 223], where the Court
sustained the validity of a printed stipulation at the back of an airline ticket
limiting the liability of the carrier for lost baggage to a specified amount and
ruled that the carrier's liability was limited to said amount since the passenger
did not declare a higher value, much less pay additional charges.
We find the ruling in Ong Yiu squarely applicable to the instant case. In said
case, the Court, through Justice Melencio Herrera, stated:
Petitioner further contends that respondent Court committed grave error
when it limited PAL's carriage liability to the amount of P100.00 as stipulated
at the back of the ticket....
We agree with the foregoing finding. The pertinent Condition of Carriage
printed at the back of the plane ticket reads:
8. BAGGAGE LIABILITY ... The total liability of the Carrier for lost or damage
baggage of the passenger is LIMITED TO P100.00 for each ticket unless a
passenger declares a higher valuation in excess of P100.00, but not in excess,
however, of a total valuation of Pl,000.00 and additional charges are paid
pursuant to Carrier's tariffs.
There is no dispute that petitioner did not declare any higher value for his
luggage, much less (lid he pay any additional transportation charge.
But petitioner argues that there is nothing in the evidence to show that he
had actually entered into a contract with PAL limiting the latter's liability for
loss or delay of the baggage of its passengers, and that Article 1750 * of the
Civil Code has not been complied with.
While it may be true that petitioner had not signed the plane ticket (Exh.
"12"), he is nevertheless bound by the provisions thereof. "Such provisions
have been held to be a part of the contract of carriage, and valid and binding
upon the passenger regardless of the latter's lack of knowledge or assent to
the regulation." [Tannebaum v. National Airline, Inc., 13 Misc. 2d 450,176
N.Y.S. 2d 400; Lichten v. Eastern Airlines, 87 Fed. Supp. 691; Migoski v.
Eastern Air Lines, Inc., Fla., 63 So. 2d 634.] It is what is known as a contract of
"adhesion," in regards which it has been said that contracts of adhesion
wherein one party imposes a ready made form of contract on the other, as
the plane ticket in the case at bar, are contracts not entirely prohibited. The
one who adheres to the contract is in reality free to reject it entirely; if he
adheres, he gives his consent,[Tolentino, Civil Code, Vol. IV, 1962 ed., p. 462,
citing Mr. Justice J.B.L. Reyes, Lawyer's Journal, Jan. 31, 1951, p. 49]. And as
held in Randolph v. American Airlines, 103 Ohio App. 172,144 N.E. 2d 878;
Rosenchein v. Trans World Airlines, Inc., 349 S.W. 2d 483.] "a contract limiting
liability upon an agreed valuation does not offend against the policy of the
law forbidding one from contracting against his own negligence."
Considering, therefore, that petitioner had failed to declare a higher value for
his baggage, he cannot be permitted a recovery in excess of P100.00....
On the other hand, the ruling in Shewaram v. Philippine Air Lines, Inc. [G.R.
No. L-20099, July 2, 1966, 17 SCRA 606], where the Court held that the
stipulation limiting the carrier's liability to a specified amount was invalid,
finds no application in the instant case, as the ruling in said case was premised
on the finding that the conditions printed at the back of the ticket were so
small and hard to read that they would not warrant the presumption that the
passenger was aware of the conditions and that he had freely and fairly
agreed thereto. In the instant case, similar facts that would make the case fall
under the exception have not been alleged, much less shown to exist.
In view thereof petitioner's liability for the lost baggage is limited to $20.00
per kilo or $600.00, as stipulated at the back of the ticket.
At this juncture, in order to rectify certain misconceptions the Court finds it
necessary to state that the Court of Appeal's reliance on a quotation
from Northwest Airlines, Inc. v. Cuenca [G.R. No. L-22425, August 31, 1965,
14 SCRA 1063] to sustain the view that "to apply the Warsaw Convention
which limits a carrier's liability to US$9.07 per pound or US$20.00 per kilo in
cases of contractual breach of carriage ** is against public policy" is utterly
misplaced, to say the least. In said case, while the Court, as quoted in the
Intermediate Appellate Court's decision, said:
Petitioner argues that pursuant to those provisions, an air "carrier is liable
only" in the event of death of a passenger or injury suffered by him, or of
destruction or loss of, or damages to any checked baggage or any goods, or
of delay in the transportation by air of passengers, baggage or goods. This
pretense is not borne out by the language of said Articles. The same merely
declare the carrier liable for damages in enumerated cases, if the conditions
therein specified are present. Neither said provisions nor others in the
aforementioned Convention regulate or exclude liability for other breaches
of contract by the carrier. Under petitioner's theory, an air carrier would be
exempt from any liability for damages in the event of its absolute refusal, in
bad faith, to comply with a contract of carriage, which is absurd.
it prefaced this statement by explaining that:
...The case is now before us on petition for review by certiorari, upon the
ground that the lower court has erred: (1) in holding that the Warsaw
Convention of October 12, 1929, relative to transportation by air is not in
force in the Philippines: (2) in not holding that respondent has no cause of
action; and (3) in awarding P20,000 as nominal damages.
We deem it unnecessary to pass upon the First assignment of error because
the same is the basis of the second assignment of error, and the latter is
devoid of merit, even if we assumed the former to be well taken. (Emphasis
supplied.)
Thus, it is quite clear that the Court never intended to, and in fact never did,
rule against the validity of provisions of the Warsaw Convention.
Consequently, by no stretch of the imagination may said quotation
from Northwest be considered as supportive of the appellate court's
statement that the provisions of the Warsaw Convention limited a carrier's
liability are against public policy.
2. The Court finds itself unable to agree with the decision of the trial court,
and affirmed by the Court of Appeals, awarding private respondents damages
as and for lost profits when their contracts to show the films in Guam and San
Francisco, California were cancelled.
The rule laid down in Mendoza v. Philippine Air Lines, Inc. [90 Phil. 836 (1952)]
cannot be any clearer:
...Under Art.1107 of the Civil Code, a debtor in good faith like the defendant
herein, may be held liable only for damages that were foreseen or might have
been foreseen at the time the contract of transportation was entered into. The
trial court correctly found that the defendant company could not have
foreseen the damages that would be suffered by Mendoza upon failure to
deliver the can of film on the 17th of September, 1948 for the reason that the
plans of Mendoza to exhibit that film during the town fiesta and his
preparations, specially the announcement of said exhibition by posters and
advertisement in the newspaper, were not called to the defendant's
attention.
In our research for authorities we have found a case very similar to the one
under consideration. In the case of Chapman vs. Fargo, L.R.A. (1918 F) p.
1049, the plaintiff in Troy, New York, delivered motion picture films to the
defendant Fargo, an express company, consigned and to be delivered to him
in Utica. At the time of shipment the attention of the express company was
called to the fact that the shipment involved motion picture films to be
exhibited in Utica, and that they should be sent to their destination, rush.
There was delay in their delivery and it was found that the plaintiff because
of his failure to exhibit the film in Utica due to the delay suffered damages or
loss of profits. But the highest court in the State of New York refused to award
him special damages. Said appellate court observed:
But before defendant could be held to special damages, such as the present
alleged loss of profits on account of delay or failure of delivery, it must have
appeared that he had notice at the time of delivery to him of the particular
circumstances attending the shipment, and which probably would lead to
such special loss if he defaulted. Or, as the rule has been stated in another
form, in order to purpose on the defaulting party further liability than for
damages naturally and directly, i.e., in the ordinary course of things, arising
from a breach of contract, such unusual or extraordinary damages must have
been brought within the contemplation of the parties as the probable result
of breach at the time of or prior to contracting. Generally, notice then of any
special circumstances which will show that the damages to be anticipated
from a breach would be enhanced has been held sufficient for this effect.
As may be seen, that New York case is a stronger one than the present case
for the reason that the attention of the common carrier in said case was called
to the nature of the articles shipped, the purpose of shipment, and the desire
to rush the shipment, circumstances and facts absent in the present case.
[Emphasis supplied.]
Thus, applying the foregoing ruling to the facts of the instant case, in the
absence of a showing that petitioner's attention was called to the special
circumstances requiring prompt delivery of private respondent Pangan's
luggages, petitioner cannot be held liable for the cancellation of private
respondents' contracts as it could not have foreseen such an eventuality
when it accepted the luggages for transit.

The Court is unable to uphold the Intermediate Appellate Court's disregard

of the rule laid down in Mendoza and affirmance of the trial court's
conclusion that petitioner is liable for damages based on the finding that
"[tlhe undisputed fact is that the contracts of the plaintiffs for the exhibition
of the films in Guam and California were cancelled because of the loss of the
two luggages in question." [Rollo, p. 36] The evidence reveals that the
proximate cause of the cancellation of the contracts was private respondent
Pangan's failure to deliver the promotional and advertising materials on the
dates agreed upon. For this petitioner cannot be held liable. Private
respondent Pangan had not declared the value of the two luggages he had
checked in and paid additional charges. Neither was petitioner privy to
respondents' contracts nor was its attention called to the condition therein
requiring delivery of the promotional and advertising materials on or before
a certain date.

3. With the Court's holding that petitioner's liability is limited to the amount
stated in the ticket, the award of attorney's fees, which is grounded on the
alleged unjustified refusal of petitioner to satisfy private respondent's just
and valid claim, loses support and must be set aside.

WHEREFORE, the Petition is hereby GRANTED and the Decision of the

Intermediate Appellate Court is SET ASIDE and a new judgment is rendered
ordering petitioner to pay private respondents damages in the amount of US
$600.00 or its equivalent in Philippine currency at the time of actual
payment. SO ORDERED.
WHEN LIMITATIONS UNAVAILABLE
G.R. No. 78656 August 30, 1988
TRANS WORLD AIRLINES, petitioner,
vs.
COURT OF APPEALS and ROGELIO A. VINLUAN, respondents.
Guerrero & Torres Law Offices for petitioner.
Angara, Abello, Concepcion, Regala & Cruz for private respondent.
The Solicitor General for public respondent.
GANCAYCO, J.:
Rogelio A. Vinluan is a practicing lawyer who had to travel in April, 1979 to
several cities in Europe and the U.S. to attend to some matters involving
several clients. He entered into a contract for air carriage for valuable
consideration with Japan Airlines first class from Manila to Tokyo, Moscow,
Paris, Hamburg, Zurich, New York, Los Angeles, Honolulu and back to Manila
thru the same airline and other airlines it represents for which he was issued
the corresponding first class tickets for the entire trip.
On April 18, 1979, while in Paris, he went to the office of Trans World Airlines
(TWA) at the De Gaulle Airport and secured therefrom confirmed reservation
for first class accommodation on board its Flight No. 41 from New York to San
Francisco which was scheduled to depart on April 20, 1979. A validated stub
was attached to the New York-Los Angeles portion of his ticket evidencing his
confirmed reservation for said flight with the mark "OK " 1 On April 20, 1979,
at about 8:00 o'clock A.M., Vinluan reconfirrred his reservation for first class
accommodation on board TWA Flight No. 41 with its New York office. He was
advised that his reservation was confirmed. He was even requested to
indicate his seat preference on said flight on said scheduled date of departure
of TWA Flight No. 41. Vinluan presented his ticket for check-in at the counter
of TWA at JFK International Airport at about 9:45 o'clock A.M., the scheduled
time of the departure being 11:00 o'clock A.M. He was informed that there
was no first class seat available for him on the flight. He asked for an
explanation but TWA employees on duty declined to give any reason. When
he began to protest, one of the TWA employees, a certain Mr. Braam, rudely
threatened him with the words "Don't argue with me, I have a very bad
temper."
To be able to keep his schedule, Vinluan was compelled to take the economy
seat offered to him and he was issued a refund application" as he was
downgraded from first class to economy class.
While waiting for the departure of Flight No. 41. Vinluan noticed that other
passengers who were white Caucasians and who had checked-in later than
him were given preference in some first class seats which became available
due to "no show" passengers.
On February 15, 1980, Vinluan filed an action for damages against the TWA
in the Court of First Instance of Rizal alleging breach of contract and bad faith.
After trial on the merits, a decision was rendered the dispositive part of which
reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against
the defendant holding the latter liable to the for-mer for the amount
representing the difference in fare between first class and economy class
accommodations on board Flight No. 6041 from New York to San Francisco,
the amount of P500,000.00 as moral damages, the amount of P300,000.00 as
exemplary damages, and the amount of P100,000.00 as and for attorney's
fees, all such amounts to earn interest at the rate of twelve (12%) percent per
annum from February 15, 1980 when the complainant was filed until fully
paid. Correspondingly, defendant's counterclaim is dismissed. Costs against
the defendant. SO ORDERED.
Not satisfied therewith, the TWA appealed to the Court of Appeals wherein
in due course a decision was rendered on May 27, 1987, 2 the dispositive part
of which reads as follows:
WHEREFORE, the decision dated March 8, 1984 is hereby modified by (1)
fixing the interest which appellant must pay on the awards of moral and
exemplary damages at six per cent (6%) per annum from the date of the
decision a quo, March 8, 1984 until date of full payment and (2) reducing the
attorne's fees to P50,000.00 without interest, the rest of the decision is
affirmed. Cost against appellant. SO ORDERED.
Hence, the herein petition for review.
The theory of the petitioner is that because of maintenance problems of the
aircraft on the day of the flight, TWA Flight No. 41 was cancelled and a special
Flight No. 6041 was organized to operate in lieu of Flight No. 41. 3 Flight No.
41 was to have utilized a Lockheed 1011 with 34 first class seats, but instead,
a smaller Boeing 707 with only 16 first class seats was substituted for use in
Flight No. 6041. Hence, passengers who had first class reservations on Flight
No. 41 had to be accommodated on Flight No. 6041 on a first-come, first-
served basis. An announcement was allegedly made to all passengers in the
entire terminal of the airport advising them to get boarding cards for Flight
No. 6041 to San Francisco and that the first ones getting them would get first
preference as to seats in the aircraft. It denied declining to give any
explanation for the downgrading of private respondent as well as the
discourteous attitude of Mr. Braam.
On the other hand, private respondent asserts that he did not hear such
announcement at the terminal and that he was among the early passengers
to present his ticket for check-in only to be informed that there was no first
class seat available for him and that he had to be downgraded.
The petitioner contends that the respondent Court of Appeals committed a
grave abuse of discretion in finding that petitioner acted maliciously and
discriminatorily, and in granting excessive moral and exemplary damages and
attorney's fees.
The contention is devoid of merit. Private respondent had a first class ticket
for Flight No. 41 of petitioner from New York to San Francisco on April 20,
1979. It was twice confirmed and yet respondent unceremoniously told him
that there was no first class seat available for him and that he had to be
downgraded to the economy class. As he protested, he was arrogantly
threatened by one Mr. Braam. Worst still, while he was waiting for the flight,
he saw that several Caucasians who arrived much later were accommodated
in first class seats when the other passengers did not show up.
where instead of courteously informing private respondent of his being
downgraded under the circumstances, he was angrily rebuffed by an
employee of petitioner.
At the time of this unfortunate incident, the private respondent was a
practicing lawyer, a senior partner of a big law firm in Manila. He was a
director of several companies and was active in civic and social organizations
in the Philippines. Considering the circumstances of this case and the social
standing of private respondent in the community, he is entitled to the award
of moral and exemplary damages. However, the moral damages should be
reduced to P300,000.00, and the exemplary damages should be reduced to
P200,000.00. This award should be reasonably sufficient to indemnify private
respondent for the humiliation and embarrassment that he suffered and to
serve as an example to discourage the repetition of similar oppressive and
discriminatory acts.
WHEREFORE, with the above modification reducing the moral and exemplary
damages as above-stated, the decision subject of the petition for review is
AFFIRMED in all other respects, without pronouncement as to costs in this
instance.
SO ORDERED.

The discrimination is obvious and the humiliation to which private

respondent was subjected is undeniable. Consequently, the award of moral
and exemplary damages by the respondent court is in order. 4
Indeed, private respondent had shown that the alleged switch of planes from
a Lockheed 1011 to a smaller Boeing 707 was because there were only 138
confirmed economy class passengers who could very well be accommodated
in the smaller plane and not because of maintenance problems.

Petitioner sacrificed the comfort of its first class passengers including private
respondent Vinluan for the sake of econonmy. Such inattention and lack of
care for the interest of its passengers who are entitled to its utmost
consideration, particularly as to their convenience, amount to bad faith which
entitles the passenger to the award of moral damages.5 More so in this case
CONDITIONS ON IMPOSITION OF LIABILITY
G.R. Nos. 100374-75 November 27, 1992
RUFINO Y. LUNA, RODOLFO J. ALONSO and PORFIRIO
RODRIGUEZ, petitioners, vs. HON. COURT OF APPEALS, HON. CRISTINA M.
ESTRADA in her capacity as Presiding Judge, RTC-Pasig, Br. 69, Metro
Manila, HON. TERESITA D. CAPULONG in her capacity as Presiding Judge,
RTC-Valenzuela, Br. 172, Metro Manila, and NORTHWEST AIRLINES,
INC., respondents.
BELLOSILLO, J.:
This joint petition for review on certiorari originated from two (2) separate
complaints arising from an airline's delay in the delivery of the luggage of its
passengers at their destination which respondent courts dismissed for lack of cause
of action. The resulting issue is whether the application of the Warsaw Convention
operates to exclude the application of the provisions of the New Civil Code and the
other statutes.
Briefly, the facts: On 19 May 1989, at around 8:00 in the morning, petitioners Rufino
Luna, Rodolfo Alonso and Porfirio Rodriguez boarded Flight 020 of private
respondent Northwest Airlines bound for Seoul, South Korea, to attend the four-day
Rotary International Convention from the 21st to the 24th of May 1992. They
checked in one (1) piece of luggage each. After boarding, however, due to engine
trouble, they were asked to disembark and transfer to a Korean Airlines plane
scheduled to depart four (4) hours later. They were assured that their baggage would
be with them in the same flight.
When petitioners arrived in Seoul, they discovered that their personal belongings
were nowhere to be found instead, they were allegedly flown to Seattle, U.S.A. It was
not until four (4) days later, and only after repeated representations with Northwest
Airlines personnel at the airport in Korea were petitioners able to retrieve their
luggage. By then the Convention, which they were hardly able to attend, was almost
over.
Petitioners Rufino Y. Luna and Rodolfo J. Alfonso assert that on 6 June 1989, or
thirteen (13) days after they recovered their luggage, they sent a written claim to
private respondent's office along Roxas Blvd., Ermita, Manila. Petitioner Porfirio
Rodriquez, on his part, asserverates that he filed his claim on 13 June 1989. However,
private respondent, is a letter of 21 June 1989, disowned any liability for the delay
and averred that it exerted "its best efforts to carry the passenger and baggage with
reasonable dispatch."1
Thus, on 14 July 1989, petitioners Luna and Alonso jointly filed a complaint for breach
of contract with damages before the Regional Trial Court of Pasig, Metro Manila,
docketed as Civil Case No. 58390, subsequently raffled to Br. 69, 2 while petitioner
Rodriquez filed his own complaint with the Regional Trial Court of Valenzuela, Metro
Manila, docketed as Civil Case No. 3194-V-89, assigned to Br. 172.3 However, upon
motion of private respondent, both complaints were dismissed 4 for lack of cause of
action due to petitioners' failure to state in their respective complaints that they filed
a prior claim with private respondent within the prescribed period.
Petitioners Luna and Alonso then filed a petition for certiorari before the Court of
Appeals to set aside the order of respondent Judge Cristina M. Estrada granting
private respondent's motion to dismiss, while petitioner Rodriquez proceeded
directly to this Court on certiorari for the same purpose. However, in Our resolution
of 26 February 1990, We referred his petition to the Court of Appeals.
On 26 March 1991, the Third Division of respondent Court of Appeals, applying the
provisions of the Warsaw Convention and ruling that certiorari was not a substitute
for a lost appeal, dismissed the petition of Luna and Alonso, 5 and on 7 June 1991
denied their motion for reconsideration.6 Meanwhile, on 28 February 1991 the
Seventh Division of respondent Court of Appeals, ruling that the questioned order of
the trial court had already become final, similarly rejected the petition of Rodriquez,
and on 6 June 1991 denied his motion for reconsideration. 7 Hence, this present
recourse by petitioners Luna, Alonso and Rodriguez.
Four (4) grounds are relied upon by petitioners which, nevertheless, may be reduced
to three, namely: (a) that respondent appellate court disregarded Our ruling
in Alitalia v. CA8 where We said that "[t]he Convention does not thus operate as an
exclusive enumeration of the instances of an airline's liability, or as an absolute limit
of the extent of that liability;"9 (b) that "petitions to revoke orders and decisions may
be entertained even after the time to appeal had elapsed, in cases wherein the
jurisdiction of the court had been exceeded;" 10 and, (c) that Art. 26 of the Warsaw
Convention which prescribes the reglementary period within which to file a claim
cannot be invoked if damage is caused by the carrier's willful misconduct, as provided
by Art. 25 of the same Warsaw Convention.
Private respondent, on the other hand, argues that the dismissal order of respondent
courts had already become final after petitioners failed to either move for
reconsideration or appeal from the orders within the reglementary period,
hence, certiorari is no substitute for a lost appeal.
Private respondent also maintains that it did not receive any demand letter from
petitioners within the 21-day reglementary period, as provided in par. 7 of the
Conditions of Contract appearing in the plane ticket. Since Art. 26. par. (4), of the
Warsaw Convention provides that "[f]ailing complaint within the times aforesaid, no
action shall lie against the carrier, save in the case of fraud on his part," the carrier
consequently cannot be held liable for the delay in the delivery of the baggage. In
other words, non-observance of the prescribed period to file a claim bars claimant's
action in court for recovery.
 have very well been filed within the period prescribed by those applicable laws.
Private respondent, citing foreign jurisprudence, 11 likewise submits that Art. 25, par. Consequently, respondent trial courts, as well as respondent appellate court, were in
(1), of the Warsaw Convention which excludes or limits liability of common carriers if error when they limited themselves to the provisions of the Warsaw Convention and
the damage is caused by it willful misconduct, refers only to the monetary ceiling on disregarding completely the provisions of the Civil Code.
damages found in Art. 22.
We are unable to agree however with petitioners that Art. 25 of the Convention
We find the appeal impressed with merit. operations to exclude the other provisions of the Convention if damage is caused by
the common carrier's willful misconduct. As correctly pointed out by private
From the facts, it appears that private respondent Northwest Airlines indeed failed respondent, Art. 25 refers only to the monetary ceiling on damages found in Art. 22
to deliver petitioners' baggage at the designated time and place. For this, all that should damage be caused by the carrier's willful misconduct. Hence, only the
respondent carrier could say was that "[w]e exerted all efforts to comply with this provisions of Art. 22 limiting the carrier's liability and imposing a monetary ceiling in
condition of the contract." 12 Hence, it is evident that petitioners suffered some case of willful misconduct on its part that the carrier cannot invoke. 19 This issue
special specie of injury for which they should rightly be compensated. Private however has become academic in the light of our ruling that the trial courts erred in
respondent cannot be allowed to escape liability by seeking refuge in the argument dismissing petitioners' respective complaints.
that the trial courts' orders have attained finality due to petitioners failure to move
for reconsideration or to file a timely appeal therefrom. Technicalities should be We are not prepared to subscribed to petitioners' argument that the failure of private
disregarded if only to render to the respective parties that which is their due. Thus, respondent to deliver their luggage at the designated time and place amounted ipso
although We have said that certiorari cannot be a substitute for a lapsed appeal, We facto to willful misconduct. For willful misconduct to exist, there must be a showing
have, time and again, likewise held that where a rigid application of that rule will that the acts complained of were impelled by an intention to violate the law, or were
result in a manifest failure or miscarriage of justice, the rule may be relaxed. 13 Hence, in persistent disregard of one's rights. It must be evidenced by a flagrantly or
considering the broader and primordial interests of justice, particularly when there is shamefully wrong or improper conduct.
grave abuse of discretion, thus impelling occasional departure from the general rule
that the extraordinary writ of certiorari cannot substitute for a lost appeal, WHEREFORE, the assailed decisions and resolutions of respondent Court of Appeals
respondent appellate court may legally entertain the special civil action are REVERSED and SET ASIDE. The complaints for breach of contract of carriage with
for certiorari. 14 damages in Civil Case No. 3194-V-89 and Civil Case No. 58390 dismissed by
Previously, We ruled that the Warsaw Convention was a treaty commitment respondent Judges Teresita D. Capulong and Cristina M. Estrada, respectively, are
voluntarily assumed by the Philippine government; consequently, it has the force and ordered REINSTATED and given due course until terminated. No costs. SO ORDERED.
effect of law in this country. 15 But, in the same token, We are also aware of
jurisprudence that the Warsaw Convention does not operate as an exclusive
enumeration of the instances for declaring an airline liable for breach of contract of
carriage or as an absolute limit of the extent of that liability. 16The Convention merely
declares the carrier liable for damages in the enumerated cases, if the conditions
therein specified are present. 17 For sure, it does not regulate the liability, much less
exempt, the carrier for violating the rights of others which must simply be respected
in accordance with their contracts of carriage. The application of the Convention
must not therefore be construed to preclude the operation of the Civil Code and
other pertinent laws. In fact, in Alitalia v. IAC, 18 We awarded Dr. Felipa Pablo nominal
damages, the provisions of the Convention notwithstanding.
Hence, petitioners' alleged failure to file a claim with the common carrier as
mandated by the provisions of the Warsaw Convention should not be a ground for
the summary dismissal of their complaints since private respondent may still be held
liable for breach of other relevant laws which may provide a different period or
procedure for filing a claim. Considering that petitioners indeed filed a claim which
private respondent admitted having received on 21 June, 1989, their demand may
CONDITIONS ON IMPOSITION OF LIABILITY Petitioner further alleged that when the plane was about to land in Rome, Italy,
EDNA DIAGO LHUILLIER, G.R. No. 171092 another flight attendant, Nickolas Kerrigan (Kerrigan), singled her out from
Petitioner, among all the passengers in the business class section to lecture on plane
safety. Allegedly, Kerrigan made her appear to the other passengers to be
Present: ignorant, uneducated, stupid, and in need of lecturing on the safety rules and
regulations of the plane. Affronted, petitioner assured Kerrigan that she knew
CARPIO, J., Chairperson, the planes safety regulations being a frequent traveler. Thereupon, Kerrigan
- versus - BRION, allegedly thrust his face a mere few centimeters away from that of the petitioner
and menacingly told her that We dont like your attitude.
DEL CASTILLO,
ABAD, and
Upon arrival in Rome, petitioner complained to respondents ground manager
PEREZ, JJ.
and demanded an apology. However, the latter declared that the flight stewards
were only doing their job.
BRITISH AIRWAYS, Promulgated:
Respondent. March 15, 2010 Thus, petitioner filed the complaint for damages, praying that respondent be
x--------------------------------------------------------- ordered to pay P5 million as moral damages, P2 million as nominal damages, P1
----------x million as exemplary damages, P300,000.00 as attorneys fees, P200,000.00 as
litigation expenses, and cost of the suit.

On May 16, 2005, summons, together with a copy of the complaint, was served
DECISION on the respondent through Violeta Echevarria, General Manager of Euro-
Philippine Airline Services, Inc.[3]

DEL CASTILLO, J.:
Jurisdictio est potestas de publico introducta cum
necessitate juris dicendi. Jurisdiction is a power introduced for the public good,
on account of the necessity of dispensing justice.[1]
Factual Antecedents
On April 28, 2005, petitioner Edna Diago Lhuillier filed a Complaint[2]for
damages against respondent British Airways before the Regional Trial Court (RTC)
of Makati City. She alleged that on February 28, 2005, she took respondents
flight 548 from London, United Kingdom to Rome, Italy. Once on board, she
allegedly requested Julian Halliday (Halliday), one of the respondents flight
attendants, to assist her in placing her hand-carried luggage in the overhead
bin. However, Halliday allegedly refused to help and assist her, and even
sarcastically remarked that If I were to help all 300 passengers in this flight, I
would have a broken back!
On May 30, 2005, respondent, by way of special appearance through counsel,
filed a Motion to Dismiss[4] on grounds of lack of jurisdiction over the case and
over the person of the respondent. Respondent alleged that only the courts
of London, United Kingdom or Rome, Italy, have jurisdiction over the complaint
for damages pursuant to the Warsaw Convention,[5] Article 28(1) of which
provides:
An action for damages must be brought at the option of the plaintiff, either
before the court of domicile of the carrier or his principal place of business, or
where he has a place of business through which the contract has been made, or
before the court of the place of destination.
Thus, since a) respondent is domiciled in London; b) respondents principal place
of business is in London; c) petitioner bought her ticket in Italy
(through Jeepney Travel S.A.S, in Rome);[6] and d) Rome, Italy is petitioners place
of destination, then it follows that the complaint should only be filed in the
proper courts of London, United Kingdom or Rome, Italy.
Likewise, it was alleged that the case must be dismissed for lack of jurisdiction
over the person of the respondent because the summons was erroneously served
on Euro-Philippine Airline Services, Inc. which is not its resident agent in
the Philippines.
On June 3, 2005, the trial court issued an Order requiring herein petitioner to file
her Comment/Opposition on the Motion to Dismiss within 10 days from notice
thereof, and for respondent to file a Reply thereon.[7] Instead of filing a
Comment/Opposition, petitioner filed on June 27, 2005, an Urgent Ex-Parte
Motion to Admit Formal Amendment to the Complaint and Issuance of Alias
Summons.[8] Petitioner alleged that upon verification with the Securities and
Exchange Commission, she found out that the resident agent of respondent in
the Philippines is Alonzo Q. Ancheta. Subsequently, on September 9, 2005,
petitioner filed a Motion to Resolve Pending Incident and Opposition to Motion
to Dismiss.[9]
Ruling of the Regional Trial Court
On October 14, 2005, the RTC of Makati City, Branch 132, issued an
Order[10] granting respondents Motion to Dismiss. It ruled that:
The Court sympathizes with the alleged ill-treatment suffered by the
plaintiff. However, our Courts have to apply the principles of international law,
and are bound by treaty stipulations entered into by the Philippines which form
part of the law of the land. One of this is the Warsaw Convention. Being a
signatory thereto, the Philippines adheres to its stipulations and is bound by its
provisions including the place where actions involving damages to plaintiff is to
be instituted, as provided for under Article 28(1) thereof. The Court finds no
justifiable reason to deviate from the indicated limitations as it will only run
counter to the provisions of the Warsaw Convention. Said adherence is in
consonance with the comity of nations and deviation from it can only be effected
through proper denunciation as enunciated in the Santos case (ibid). Since
the Philippines is not the place of domicile of the defendant nor is it the
principal place of business, our courts are thus divested of jurisdiction over cases
for damages. Neither was plaintiffs ticket issued in this country nor was her
destination Manila but Rome in Italy. It bears stressing however, that referral to
the court of proper jurisdiction does not constitute constructive denial of
plaintiffs right to have access to our courts since the Warsaw Convention itself
provided for jurisdiction over cases arising from international
transportation. Said treaty stipulations must be complied with in good faith
following the time honored principle of pacta sunt servanda.
The resolution of the propriety of service of summons is rendered moot by the
Courts want of jurisdiction over the instant case.
WHEREFORE, premises considered, the present Motion to Dismiss is hereby
GRANTED and this case is hereby ordered DISMISSED.
Petitioner filed a Motion for Reconsideration but the motion was denied in an
Order[11] dated January 4, 2006.
Petitioner now comes directly before us on a Petition for Review on Certiorari on
pure questions of law, raising the following issues:
Issues
I. WHETHER X X X PHILIPPINE COURTS HAVE
JURISDICTION OVER A TORTIOUS CONDUCT COMMITTED AGAINST A FILIPINO
CITIZEN AND RESIDENT BY AIRLINE PERSONNEL OF A FOREIGN CARRIER
TRAVELLING BEYOND THE TERRITORIAL LIMIT OF ANY FOREIGN COUNTRY; AND
THUS IS OUTSIDE THE AMBIT OF THE WARSAW CONVENTION.
II. WHETHER X X X RESPONDENT AIR CARRIER
OF PASSENGERS, IN FILING ITS MOTION TO DISMISS BASED ON LACK OF
JURISDICTION OVER THE SUBJECT MATTER OF THE CASE AND OVER ITS PERSON
MAY BE DEEMED AS HAVING IN FACT AND IN LAW SUBMITTED ITSELF TO THE
JURISDICTION OF THE LOWER COURT, ESPECIALLY SO, WHEN THE VERY LAWYER
ARGUING FOR IT IS HIMSELF THE RESIDENT AGENT OF THE CARRIER.
Petitioners Arguments
Petitioner argues that her cause of action arose not from the contract of carriage,
but from the tortious conduct committed by airline personnel of respondent in
violation of the provisions of the Civil Code on Human Relations. Since her cause
of action was not predicated on the contract of carriage, petitioner asserts that
she has the option to pursue this case in this jurisdiction pursuant to Philippine
laws.
Respondents Arguments
In contrast, respondent maintains that petitioners claim for damages fell within
the ambit of Article 28(1) of the Warsaw Convention. As such, the same can only
be filed before the courts of London, United Kingdom or Rome, Italy.
Our Ruling
The petition is without merit.

The Warsaw Convention has the force and effect of law in this country.
It is settled that the Warsaw Convention has the force and effect of law in this
country. In Santos III v. Northwest Orient Airlines,[12] we held that:
The Republic of the Philippines is a party to the Convention for the Unification of
Certain Rules Relating to International Transportation by Air, otherwise known as
the Warsaw Convention. It took effect on February 13, 1933. The Convention was
concurred in by the Senate, through its Resolution No. 19, on May 16, 1950. The
Philippine instrument of accession was signed by
President Elpidio Quirino on October 13, 1950, and was deposited with the
Polish government on November 9, 1950. The Convention became applicable to
the Philippines on February 9, 1951. On September 23, 1955, President Ramon
Magsaysay issued Proclamation No. 201, declaring our formal adherence
thereto, to the end that the same and every article and clause thereof may be
observed and fulfilled in good faith by the Republic of the Philippines and the
citizens thereof.
The Convention is thus a treaty commitment voluntarily assumed by the
Philippine government and, as such, has the force and effect of law in this
country.[13]
The Warsaw Convention applies because the air travel, where the
alleged tortious conduct occurred, was between the United Kingdom and Italy,
which are both signatories to the Warsaw Convention.
Article 1 of the Warsaw Convention provides:
1. This Convention applies to all international carriage of persons, luggage or
goods performed by aircraft for reward. It applies equally to gratuitous carriage
by aircraft performed by an air transport undertaking.
2. For the purposes of this Convention the expression "international carriage"
means any carriage in which, according to the contract made by the parties, the
place of departure and the place of destination, whether or not there be a break
in the carriage or a transhipment, are situated either within the territories of two
High Contracting Parties, or within the territory of a single High Contracting Party,
if there is an agreed stopping place within a territory subject to the sovereignty,
suzerainty, mandate or authority of another Power, even though that Power is
not a party to this Convention. A carriage without such an agreed stopping place
between territories subject to the sovereignty, suzerainty, mandate or authority
of the same High Contracting Party is not deemed to be international for the
purposes of this Convention. (Emphasis supplied)
Thus, when the place of departure and the place of destination in a contract of
carriage are situated within the territories of two High Contracting Parties, said
carriage is deemed an international carriage. The High Contracting Parties
referred to herein were the signatories to the Warsaw Convention and those
which subsequently adhered to it.[14]
In the case at bench, petitioners place of departure was London, United
Kingdom while her place of destination was Rome, Italy.[15] Both the United
Kingdom[16] and Italy[17] signed and ratified the Warsaw Convention. As such, the
transport of the petitioner is deemed to be an international carriage within the
contemplation of the Warsaw Convention.
Since the Warsaw Convention applies in the instant case, then the jurisdiction
over the subject matter of the action is governed by the provisions of
the Warsaw Convention.
Under Article 28(1) of the Warsaw Convention, the plaintiff may bring the action
for damages before
1. the court where the carrier is domiciled;
2. the court where the carrier has its principal place of business;
3. the court where the carrier has an establishment by which the contract has
been made; or
4. the court of the place of destination.
In this case, it is not disputed that respondent is a British corporation domiciled
in London, United Kingdom with London as its principal place of business. Hence,
under the first and second jurisdictional rules, the petitioner may bring her case
before the courts of London in the United Kingdom. In the passenger ticket and
baggage check presented by both the petitioner and respondent, it appears that
the ticket was issued in Rome, Italy. Consequently, under the third jurisdictional
rule, the petitioner has the option to bring her case before the courts
of Rome in Italy. Finally, both the petitioner and respondent aver that the place
of destination is Rome, Italy, which is properly designated given the routing
presented in the said passenger ticket and baggage check. Accordingly, petitioner
may bring her action before the courts of Rome, Italy. We thus find that the RTC
of Makati correctly ruled that it does not have jurisdiction over the case filed by
the petitioner.
Santos III v. Northwest Orient Airlines[18] applies in this case.
Petitioner contends that Santos III v. Northwest Orient Airlines[19] cited by the
trial court is inapplicable to the present controversy since the facts thereof are
not similar with the instant case.
We are not persuaded.
In Santos III v. Northwest Orient Airlines,[20] Augusto Santos III, a resident of
the Philippines, purchased a ticket from Northwest Orient Airlines in San
Francisco, for transport between San Francisco and Manila via Tokyo and back
to San Francisco. He was wait-listed in the Tokyo to Manila segment of his ticket,
despite his prior reservation. Contending that Northwest Orient Airlines acted in
bad faith and discriminated against him when it canceled his confirmed
reservation and gave his seat to someone who had no better right to it, Augusto
Santos III sued the carrier for damages before the RTC. Northwest Orient Airlines
moved to dismiss the complaint on ground of lack of jurisdiction citing Article
28(1) of the Warsaw Convention. The trial court granted the motion which ruling
was affirmed by the Court of Appeals. When the case was brought before us, we
denied the petition holding that under Article 28(1) of the Warsaw Convention,
Augusto Santos III must prosecute his claim in the United States, that place being
the (1) domicile of the Northwest Orient Airlines; (2) principal office of the carrier;
(3) place where contract had been made (San Francisco); and (4) place of
destination (San Francisco).[21]
We further held that Article 28(1) of the Warsaw Convention is jurisdictional in
character. Thus:
A number of reasons tends to support the characterization of Article 28(1) as a
jurisdiction and not a venue provision. First, the wording of Article 32, which
indicates the places where the action for damages "must" be brought,
underscores the mandatory nature of Article 28(1). Second, this characterization
is consistent with one of the objectives of the Convention, which is to "regulate
in a uniform manner the conditions of international transportation by air." Third,
the Convention does not contain any provision prescribing rules of jurisdiction
other than Article 28(1), which means that the phrase "rules as to jurisdiction"
used in Article 32 must refer only to Article 28(1). In fact, the last sentence of
Article 32 specifically deals with the exclusive enumeration in Article 28(1) as
"jurisdictions," which, as such, cannot be left to the will of the parties regardless
of the time when the damage occurred.
xxxx
In other words, where the matter is governed by the Warsaw Convention,
jurisdiction takes on a dual concept. Jurisdiction in the international sense must
be established in accordance with Article 28(1) of the Warsaw Convention,
following which the jurisdiction of a particular court must be established
pursuant to the applicable domestic law. Only after the question of which court
has jurisdiction is determined will the issue of venue be taken up. This second
question shall be governed by the law of the court to which the case is
submitted.[22]
Contrary to the contention of petitioner, Santos III v. Northwest Orient
Airlines[23] is analogous to the instant case because (1) the domicile of respondent
is London, United Kingdom;[24] (2) the principal office of respondent airline is
likewise in London, United Kingdom;[25] (3) the ticket was purchased in Rome,
Italy;[26] and (4) the place of destination is Rome, Italy.[27] In addition, petitioner
based her complaint on Article 2176[28] of the Civil Code on quasi-delict and
Articles 19[29] and 21[30] of the Civil Code on Human Relations. In Santos III v.
Northwest Orient Airlines,[31] Augusto Santos III similarly posited that Article 28
(1) of the Warsaw Convention did not apply if the action is based on tort. Hence,
contrary to the contention of the petitioner, the factual setting of Santos III v.
Northwest Orient Airlines[32] and the instant case are parallel on the material
points.
Tortious conduct as ground for the petitioners complaint is within the purview
of the Warsaw Convention.
Petitioner contends that in Santos III v. Northwest Orient Airlines,[33] the cause of
action was based on a breach of contract while her cause of action arose from
the tortious conduct of the airline personnel and violation of the Civil Code
provisions on Human Relations.[34] In addition, she claims that our
pronouncement in Santos III v. Northwest Orient Airlines[35] that the allegation of
willful misconduct resulting in a tort is insufficient to exclude the case from the
comprehension of the Warsaw Convention, is more of an obiter dictum rather
than the ratio decidendi.[36] She maintains that the fact that said acts occurred
aboard a plane is merely incidental, if not irrelevant.[37]
We disagree with the position taken by the petitioner. Black defines obiter
dictum as "an opinion entirely unnecessary for the decision of the case" and thus
"are not binding as precedent."[38] In Santos III v. Northwest Orient
Airlines,[39] Augusto Santos III categorically put in issue the applicability of Article
28(1) of the Warsaw Convention if the action is based on tort.
In the said case, we held that the allegation of willful misconduct resulting in a
tort is insufficient to exclude the case from the realm of the Warsaw
Convention. In fact, our ruling that a cause of action based on tort did not bring
the case outside the sphere of the Warsaw Convention was our ratio decidendi in
disposing of the specific issue presented by Augusto Santos III. Clearly, the
contention of the herein petitioner that the said ruling is an obiter dictum is
without basis.
Relevant to this particular issue is the case of Carey v. United Airlines,[40] where
the passenger filed an action against the airline arising from an incident involving
the former and the airlines flight attendant during an international flight resulting
to a heated exchange which included insults and profanity. The United States
Court of Appeals (9th Circuit) held that the passenger's action against the airline
carrier arising from alleged confrontational incident between passenger and
flight attendant on international flight was governed exclusively by the Warsaw
Convention, even though the incident allegedly involved intentional misconduct
by the flight attendant.[41]
In Bloom v. Alaska Airlines,[42] the passenger brought nine causes of action
against the airline in the state court, arising from a confrontation with the flight
attendant during an international flight to Mexico. The United States Court of
Appeals (9th Circuit) held that the Warsaw Convention governs actions arising
from international air travel and provides the exclusive remedy for conduct which
falls within its provisions. It further held that the said Convention created no
exception for an injury suffered as a result of intentional conduct [43] which in that
case involved a claim for intentional infliction of emotional distress.
It is thus settled that allegations of tortious conduct committed against an airline
passenger during the course of the international carriage do not bring the case
outside the ambit of the Warsaw Convention.
Respondent, in seeking remedies from the trial court through special
appearance of counsel, is not deemed to have voluntarily submitted itself to the
jurisdiction of the trial court.
Petitioner argues that respondent has effectively submitted itself to the
jurisdiction of the trial court when the latter stated in its Comment/Opposition
to the Motion for Reconsideration that Defendant [is at a loss] x x x how the
plaintiff arrived at her erroneous impression that it is/was Euro-Philippines
Airlines Services, Inc. that has been making a special appearance since
x x x British Airways x x x has been clearly specifying in all the pleadings that it
has filed with this Honorable Court that it is the one making a special
appearance.[44]
In refuting the contention of petitioner, respondent cited La Naval Drug
Corporation v. Court of Appeals[45] where we held that even if a party challenges
the jurisdiction of the court over his person, as by reason of absence or defective
service of summons, and he also invokes other grounds for the dismissal of the
action under Rule 16, he is not deemed to be in estoppel or to have waived his
objection to the jurisdiction over his person.[46]
This issue has been squarely passed upon in the recent case of Garcia
v. Sandiganbayan,[47] where we reiterated our ruling in La Naval Drug
Corporation v. Court of Appeals[48] and elucidated thus:
Special Appearance to Question a Courts Jurisdiction Is Not
Voluntary Appearance
The second sentence of Sec. 20, Rule 14 of the Revised Rules of Civil Procedure
clearly provides:
Sec. 20. Voluntary appearance. The defendants voluntary appearance in the
action shall be equivalent to service of summons. The inclusion in a motion to
dismiss of other grounds aside from lack of jurisdiction over the person of the
defendant shall not be deemed a voluntary appearance.
Thus, a defendant who files a motion to dismiss, assailing the jurisdiction of the
court over his person, together with other grounds raised therein, is not deemed
to have appeared voluntarily before the court. What the rule on voluntary
appearance the first sentence of the above-quoted rule means is that the
voluntary appearance of the defendant in court is without qualification, in which
case he is deemed to have waived his defense of lack of jurisdiction over his
person due to improper service of summons.
The pleadings filed by petitioner in the subject forfeiture cases, however, do not
show that she voluntarily appeared without qualification. Petitioner filed the
following pleadings in Forfeiture I: (a) motion to dismiss; (b) motion for
reconsideration and/or to admit answer; (c) second motion for reconsideration;
(d) motion to consolidate forfeiture case with plunder case; and (e) motion to voluntary appearance before the trial court that could constitute estoppel or a
dismiss and/or to quash Forfeiture I. And in Forfeiture II: (a) motion to dismiss waiver of respondents objection to jurisdiction over its person.
and/or to quash Forfeiture II; and (b) motion for partial reconsideration.
WHEREFORE, the petition is DENIED. The October 14, 2005 Order of
The foregoing pleadings, particularly the motions to dismiss, were filed by the Regional Trial Court of Makati City, Branch 132, dismissing the complaint for
petitioner solely for special appearance with the purpose of challenging the lack of jurisdiction, is AFFIRMED.
jurisdiction of the SB over her person and that of her three children. Petitioner
asserts therein that SB did not acquire jurisdiction over her person and of her
three children for lack of valid service of summons through improvident
substituted service of summons in both Forfeiture I and Forfeiture II. This stance
the petitioner never abandoned when she filed her motions for reconsideration,
even with a prayer to admit their attached Answer
Ex Abundante Ad Cautelam dated January 22, 2005 setting forth affirmative
defenses with a claim for damages. And the other subsequent pleadings, likewise,
did not abandon her stance and defense of lack of jurisdiction due to improper
substituted services of summons in the forfeiture cases. Evidently, from the
foregoing Sec. 20, Rule 14 of the 1997 Revised Rules on Civil Procedure, petitioner
and her sons did not voluntarily appear before the SB constitutive of or
equivalent to service of summons.

Moreover, the leading La Naval Drug Corp. v. Court of Appeals applies to the
instant case. Said case elucidates the current view in our jurisdiction that a
special appearance before the courtchallenging its jurisdiction over the person
through a motion to dismiss even if the movant invokes other groundsis not
tantamount to estoppel or a waiver by the movant of his objection to jurisdiction
over his person; and such is not constitutive of a voluntary submission to the
jurisdiction of the court.

Thus, it cannot be said that petitioner and her three children voluntarily appeared
before the SB to cure the defective substituted services of summons. They are,
therefore, not estopped from questioning the jurisdiction of the SB over their
persons nor are they deemed to have waived such defense of lack of jurisdiction.
Consequently, there being no valid substituted services of summons made, the
SB did not acquire jurisdiction over the persons of petitioner and her children.
And perforce, the proceedings in the subject forfeiture cases, insofar as
petitioner and her three children are concerned, are null and void for lack of
jurisdiction. (Emphasis supplied)

In this case, the special appearance of the counsel of respondent in filing the
Motion to Dismiss and other pleadings before the trial court cannot be deemed
to be voluntary submission to the jurisdiction of the said trial court. We hence
disagree with the contention of the petitioner and rule that there was no
CONDITIONS ON IMPOSITION OF LIABILITY
PHILIPPINE AIRLINES, INC., G.R. No. 149547 On 3 October 1993, private respondent and his companions took the PAL flight
Petitioner, to Singapore and arrived at about 6:00 oclock in the evening. Upon their arrival, they
Present: proceeded to the Singapore Airlines office to check-in for their flight
to Jakarta scheduled at 8:00 oclock in the same evening. Singapore Airlines rejected
the tickets of private respondent and his group because they were not endorsed by
YNARES-SANTIAGO, J., PAL. It was explained to private respondent and his group that if Singapore Airlines
- versus - Chairperson, honored the tickets without PALs endorsement, PAL would not pay Singapore
AUSTRIA-MARTINEZ, Airlines for their passage. Private respondent tried to contact PALs office at the
CHICO-NAZARIO, airport, only to find out that it was closed.[5]
NACHURA, and
HON. ADRIANO SAVILLO, Presiding REYES, JJ. Stranded at the airport in Singapore and left with no recourse, private respondent
Judge of RTC Branch 30 , Iloilo City, was in panic and at a loss where to go; and was subjected to humiliation,
and SIMPLICIO GRIO, Promulgated: embarrassment, mental anguish, serious anxiety, fear and distress. Eventually,
Respondents. private respondent and his companions were forced to purchase tickets
from GarudaAirlines and board its last flight bound for Jakarta. When they arrived
July 4, 2008
in Jakarta at about 12:00 oclock midnight, the party who was supposed to fetch them
x-------------------------------------------------x from the airport had already left and they had to arrange for their transportation to
DECISION the hotel at a very late hour. After the series of nerve-wracking experiences, private
CHICO-NAZARIO, J.: respondent became ill and was unable to participate in the tournament. [6]

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing
the Decision[1] dated 17 August 2001, rendered by the Court of Appeals in CA-G.R. SP
No. 48664, affirming in toto the Order[2] dated 9 June 1998, of Branch 30 of the
Regional Trial Court (RTC) of Iloilo City, dismissing the Motion to Dismiss filed by
petitioner Philippine Airlines Inc. (PAL) in the case entitled, Simplicio Grio v.
Philippine Airlines, Inc. and Singapore Airlines, docketed as Civil Case No. 23773.
PAL is a corporation duly organized under Philippine law, engaged in the business of
providing air carriage for passengers, baggage and cargo.[3]
Public respondent Hon. Adriano Savillo is the presiding judge of Branch 30 of the
Iloilo RTC, where Civil Case No. 23773 was filed; while private
respondent Simplicio Grio is the plaintiff in the aforementioned case.
The facts are undisputed.
Private respondent was invited to participate in the 1993 ASEAN Seniors Annual Golf
Tournament held in Jakarta, Indonesia. He and several companions decided to
purchase their respective passenger tickets from PAL with the following points of
passage: MANILA-SINGAPORE-JAKARTA-SINGAPORE-MANILA. Private respondent
and his companions were made to understand by PAL that its plane would take them
from Manila to Singapore, while Singapore Airlines would take them
from Singapore to Jakarta.[4]
Upon his return to the Philippines, private respondent brought the matter to the
attention of PAL. He sent a demand letter to PAL on 20 December 1993 and another
to Singapore Airlines on 21 March 1994. However, both airlines disowned liability
and blamed each other for the fiasco. On 15 August 1997, private respondent filed a
Complaint for Damages before the RTC docketed as Civil Case No. 23773, seeking
compensation for moral damages in the amount of P1,000,000.00 and attorneys
fees.[7]
Instead of filing an answer to private respondents Complaint, PAL filed a Motion to
Dismiss[8] dated 18 September 1998 on the ground that the said complaint was
barred on the ground of prescription under Section 1(f) of Rule 16 of the Rules of
Court.[9] PAL argued that the Warsaw Convention,[10]particularly Article 29
thereof,[11] governed this case, as it provides that any claim for damages in
connection with the international transportation of persons is subject to the
prescription period of two years. Since the Complaint was filed on 15 August
1997, more than three years after PAL received the demand letter on 25 January
1994, it was already barred by prescription.
On 9 June 1998, the RTC issued an Order[12] denying the Motion to Dismiss. It
maintained that the provisions of the Civil Code and other pertinent laws of
the Philippines, not the Warsaw Convention, were applicable to the present case.
The Court of Appeals, in its assailed Decision dated 17 August 2001, likewise
dismissed the Petition for Certiorari filed by PAL and affirmed the 9 June 1998 Order
of the RTC. It pronounced that the application of the Warsaw Convention must not
be construed to preclude the application of the Civil Code and other pertinent
laws. By applying Article 1144 of the Civil Code,[13] which allowed for a ten-year
prescription period, the appellate court declared that the Complaint filed by private
respondent should not be dismissed.[14]
Hence, the present Petition, in which petitioner raises the following issues:
1. THE COURT OF APPEALS ERRED IN NOT GIVING DUE COURSE TO THE
PETITION AS RESPONDENT JUDGE COMMITED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF JURSIDICTION IN DENYING PALS
MOTION TO DISMISS.
2. THE COURT OF APPEALS ERRED IN NOT APPLYING THE PROVISIONS OF
THE WARSAW CONVENTION DESPITE THE FACT THAT GRIOS CAUSE OF
ACTION AROSE FROM A BREACH OF CONTRACT FOR INTERNATIONAL AIR
TRANSPORT.
3. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE COMPLAINT
FILED BY GRIO BEYOND THE TWO (2)-YEAR PERIOD PROVIDED UNDER
THE WARSAW CONVENTION IS ALREADY BARRED BY PRESCRIPTION.[15]
The petition is without merit.
In determining whether PALs Motion to Dismiss should have been granted by the trial
court, it must be ascertained if all the claims made by the private respondent in his
Complaint are covered by the Warsaw Convention, which effectively bars all claims
made outside the two-year prescription period provided under Article 29 thereof. If
the Warsaw Convention covers all of private respondents claims, then Civil Case No.
23773 has already prescribed and should therefore be dismissed. On the other hand,
if some, if not all, of respondents claims are outside the coverage of the Warsaw
Convention, the RTC may still proceed to hear the case.
The Warsaw Convention applies to all international transportation of persons,
baggage or goods performed by any aircraft for hire. It seeks to accommodate or
balance the interests of passengers seeking recovery for personal injuries and the
interests of air carriers seeking to limit potential liability. It employs a scheme of strict
liability favoring passengers and imposing damage caps to benefit air carriers.[16] The
cardinal purpose of the Warsaw Convention is to provide uniformity of rules
governing claims arising from international air travel; thus, it precludes a passenger
from maintaining an action for personal injury damages under local law when his or
her claim does not satisfy the conditions of liability under the Convention. [17]
Article 19 of the Warsaw Convention provides for liability on the part of a carrier for
damages occasioned by delay in the transportation by air of passengers, baggage or
goods. Article 24 excludes other remedies by further providing that (1) in the cases
covered by articles 18 and 19, any action for damages, however founded, can only be
brought subject to the conditions and limits set out in this convention. Therefore, a
claim covered by the Warsaw Convention can no longer be recovered under local law,
if the statute of limitations of two years has already lapsed.
Nevertheless, this Court notes that jurisprudence in the Philippines and the United
States also recognizes that the Warsaw Convention does not exclusively regulate the
relationship between passenger and carrier on an international flight. This Court
finds that the present case is substantially similar to cases in which the damages
sought were considered to be outside the coverage of the Warsaw Convention.
In United Airlines v. Uy,[18] this Court distinguished between the (1) damage to the
passengers baggage and (2) humiliation he suffered at the hands of the airlines
employees. The first cause of action was covered by the Warsaw Convention which
prescribes in two years, while the second was covered by the provisions of the Civil
Code on torts, which prescribes in four years.
Similar distinctions were made in American jurisprudence. In Mahaney v. Air
France,[19] a passenger was denied access to an airline flight between New
York and Mexico, despite the fact that she held a confirmed reservation. The court
therein ruled that if the plaintiff were to claim damages based solely on the delay she
experienced for instance, the costs of renting a van, which she had to arrange on her
own as a consequence of the delay the complaint would be barred by the two-year
statute of limitations. However, where the plaintiff alleged that the airlines subjected
her to unjust discrimination or undue or unreasonable preference or disadvantage,
an act punishable under the United States laws, then the plaintiff may claim purely
nominal compensatory damages for humiliation and hurt feelings, which are not
provided for by the Warsaw Convention. In another
case, Wolgel v. Mexicana Airlines,[20] the court pronounced that actions for damages
for the bumping off itself, rather than the incidental damages due to the delay, fall
outside the Warsaw Convention and do not prescribe in two years.
In the Petition at bar, private respondents Complaint alleged that both PAL and
Singapore Airlines were guilty of gross negligence, which resulted in his being
subjected to humiliation, embarrassment, mental anguish, serious anxiety, fear and
distress.[21] The emotional harm suffered by the private respondent as a result of
having been unreasonably and unjustly prevented from boarding the plane should be
distinguished from the actual damages which resulted from the same incident. Under
the Civil Code provisions on tort,[22] such emotional harm gives rise to compensation
where gross negligence or malice is proven.
The instant case is comparable to the case of Lathigra v. British Airways.[23]
In Lathigra, it was held that the airlines negligent act of reconfirming the passengers
reservation days before departure and failing to inform the latter that the flight had
already been discontinued is not among the acts covered by the Warsaw Convention,
since the alleged negligence did not occur during the performance of the contract of
carriage but, rather, days before the scheduled flight.
In the case at hand, Singapore Airlines barred private respondent from boarding the
Singapore Airlines flight because PAL allegedly failed to endorse the tickets of private
respondent and his companions, despite PALs assurances to respondent that
Singapore Airlines had already confirmed their passage. While this fact still needs to
be heard and established by adequate proof before the RTC, an action based on these
allegations will not fall under the Warsaw Convention, since the purported
negligence on the part of PAL did not occur during the performance of the contract
of carriage but days before the scheduled flight. Thus, the present action cannot be
dismissed based on the statute of limitations provided under Article 29 of the
Warsaw Convention.
Moreover, should there be any doubt as to the prescription of private respondents
Complaint, the more prudent action is for the RTC to continue hearing the same and
deny the Motion to Dismiss. Where it cannot be determined with certainty whether
the action has already prescribed or not, the defense of prescription cannot be
sustained on a mere motion to dismiss based on what appears to be on the face of
the complaint.[24] And where the ground on which prescription is based does not
appear to be indubitable, the court may do well to defer action on the motion to
dismiss until after trial on the merits.[25]
IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The assailed Decision of
the Court of Appeals in CA-G.R. SP No. 48664, promulgated on 17 August
2001 is AFFIRMED. Costs against the petitioner.
SO ORDERED.

Had the present case merely consisted of claims incidental to the airlines delay in
transporting their passengers, the private respondents Complaint would have been
time-barred under Article 29 of the Warsaw Convention. However, the present case
involves a special species of injury resulting from the failure of PAL and/or Singapore
Airlines to transport private respondent from Singapore to Jakarta the profound
distress, fear, anxiety and humiliation that private respondent experienced when,
despite PALs earlier assurance that Singapore Airlines confirmed his passage, he was
prevented from boarding the plane and he faced the daunting possibility that he
would be stranded in Singapore Airport because the PAL office was already closed.

These claims are covered by the Civil Code provisions on tort, and not within the
purview of the Warsaw Convention. Hence, the applicable prescription period is that
provided under Article 1146 of the Civil Code:

Art. 1146. The following actions must be instituted within four years:

(1) Upon an injury to the rights of the plaintiff;

(2) Upon a quasi-delict.

Private respondents Complaint was filed with the RTC on 15 August 1997, which was
less than four years since PAL received his extrajudicial demand on 25 January
1994. Thus, private respondents claims have not yet prescribed and PALs Motion to
Dismiss must be denied.
CONDITIONS ON IMPOSITION OF LIABILITY and another dated 28 October 1991 through Atty. Ramon U. Ampil demanding an
G.R. No. 127768 November 19, 1999 out-of-court settlement of P1,000,000.00. Petitioner United Airlines did not accede
UNITED AIRLINES, petitioner, vs. WILLIE J. UY, respondent. to his demands.

Consequently, on 9 June 1992 respondent filed a complaint for damages against

BELLOSILLO, J.:
United Airlines alleging that he was a person of good station, sitting in the board of
UNITED AIRLINES assails in this petition for review on certiorari under Rule 45 the 29
directors of several top 500 corporations and holding senior executive positions for
August 1995 Decision of the Court of Appeals in CA-G.R. CV No. 39761 which reversed
such similar firms; 3 that petitioner airline accorded him ill and shabby treatment to
the 7 August 1992 order issued by the trial court in Civil Case No. Q-92-
his extreme embarrassment and humiliation; and, as such he should be paid moral
12410 1 granting petitioner's motion to dismiss based on prescription of cause of
damages of at least P1,000,000.00, exemplary damages of at least P500,000.00, plus
action. The issues sought to be resolved are whether the notice of appeal to the
attorney's fees of at least P50,000.00. Similarly, he alleged that the damage to his
appellate court was timely filed, and whether Art. 29 of the Warsaw
luggage and its stolen contents amounted to around $5,310.00, and requested
Convention 2 should apply to the case at bar.
reimbursement therefor.
On 13 October 1989 respondent Willie J. Uy, a revenue passenger on United Airlines
United Airlines moved to dismiss the complaint on the ground that respondent's
Flight No. 819 for the San Francisco — Manila route, checked in together with his
cause of action had prescribed, invoking Art. 29 of the Warsaw Convention which
luggage one piece of which was found to be overweight at the airline counter. To his
provides —
utter humiliation, an employee of petitioner rebuked him saying that he should have
Art. 29 (1) The right to damages shall be extinguished if an action is not brought within
known the maximum weight allowance to be 70 kgs. per bag and that he should have
two (2) years, reckoned from the date of arrival at the destination, or from the date
packed his things accordingly. Then, in a loud voice in front of the milling crowd, she
on which the aircraft ought to have arrived, or from the date on which the
told respondent to repack his things and transfer some of them from the overweight
transportation stopped.
luggage to the lighter ones. Not wishing to create further scene, respondent acceded
(2) The method of calculating the period of limitation shall be determined by the law
only to find his luggage still overweight. The airline then billed him overweight
of the court to which the case is submitted.
charges which he offered to pay with a miscellaneous charge order (MCO) or an
airline pre-paid credit.
Respondent countered that par. (1) of Art. 29 of the Warsaw Convention must be
reconciled with par. (2) thereof which states that "the method of calculating the
However, the airline's employee, and later its airport supervisor, adamantly refused
period of limitation shall be determined by the law of the court to which the case is
to honor the MCO pointing out that there were conflicting figures listed on it. Despite
submitted." Interpreting thus, respondent noted that according to Philippine laws
the explanation from respondent that the last figure written on the MCO represented
the prescription of actions is interrupted "when they are filed before the court, when
his balance, petitioner's employees did not accommodate him. Faced with the
there is a written extrajudicial demand by the creditors, and when there is any
prospect of leaving without his luggage, respondent paid the overweight charges
written acknowledgment of the debt by the debtor." 4 Since he made several
with his American Express credit card.
demands upon United Airlines: first, through his personal letter dated 16 October
1989; second, through a letter dated 4 January 1990 from Atty. Pesigan; and, finally,
Respondent's troubles did not end there. Upon arrival in Manila, he discovered that
through a letter dated 28 October 1991 written for him by Atty. Ampil, the two (2)-
one of his bags had been slashed and its contents stolen. He particularized his losses
year period of limitation had not yet been exhausted.
to be around US $5,310.00. In a letter dated 16 October 1989 respondent bewailed
the insult, embarrassment and humiliating treatment he suffered in the hands of
On 2 August 1992 the trial court ordered the dismissal of the action holding that the
United Airlines employees, notified petitioner of his loss and requested
language of Art. 29 is clear that the action must be brought within two (2) years from
reimbursement thereof. Petitioner United Airlines, through Central Baggage
the date of arrival at the destination. It held that although the second paragraph of
Specialist Joan Kroll, did not refute any of respondent's allegations and mailed a check
Art. 29 speaks of deference to the law of the local court in "calculating the period of
representing the payment of his loss based on the maximum liability of US $9.70 per
limitation," the same does not refer to the local forum's rules in interrupting the
pound. Respondent, thinking the amount to be grossly inadequate to compensate
prescriptive period but only to the rules of determining the time in which the action
him for his losses, as well as for the indignities he was subjected to, sent two (2) more
may be deemed commenced, and within our jurisdiction the action shall be deemed
letters to petitioner airline, one dated 4 January 1990 through a certain Atty. Pesigan,
"brought" or commenced by the filing of a complaint. Hence, the trial court
concluded that Art. 29 excludes the application of our interruption rules.
Respondent received a copy of the dismissal order on 17 August 1992. On 31 August
1992, or fourteen (14) days later, he moved for the reconsideration of the trial court's
order. The trial court denied the motion and respondent received copy of the denial
order on 28 September 1992. Two (2) days later, on 1 October 1992 respondent filed
his notice of appeal.
United Airlines once again moved for the dismissal of the case this time pointing out
that respondent's fifteen (15)-day period to appeal had already elapsed. Petitioner
argued that having used fourteen (14) days of the reglementary period for appeal,
respondent Uy had only one (1) day remaining to perfect his appeal, and since he
filed his notice of appeal two (2) days later, he failed to meet the deadline.
In its questioned Decision dated 29 August 1995 5 the appellate court gave due
course to the appeal holding that respondent's delay of two (2) days in filing his notice
of appeal did not hinder it from reviewing the appealed order of dismissal since
jurisprudence dictates that an appeal may be entertained despite procedural lapses
anchored on equity and justice.
On the applicability of the Warsaw Convention, the appellate court ruled that the
Warsaw Convention did not preclude the operation of the Civil Code and other
pertinent laws. Respondent's failure to file his complaint within the two (2)-year
limitation provided in the Warsaw Convention did not bar his action since he could
still hold petitioner liable for breach of other provisions of the Civil Code which
prescribe a different period or procedure for instituting an action. Further, under
Philippine laws, prescription of actions is interrupted where, among others, there is
a written extrajudicial demand by the creditors, and since respondent Uy sent several
demand letters to petitioner United Airlines, the running of the two (2)-year
prescriptive period was in effect suspended. Hence, the appellate court ruled that
respondent's cause of action had not yet prescribed and ordered the records
remanded to the Quezon City trial court for further proceedings.
Petitioner now contends that the appellate court erred in assuming jurisdiction over
respondent's appeal since it is clear that the notice of appeal was filed out of time. It
argues that the courts relax the stringent rule on perfection of appeals only when
there are extraordinary circumstances, e.g., when the Republic stands to lose
hundreds of hectares of land already titled and used for educational purposes; when
the counsel of record was already dead; and wherein appellant was the owner of the
trademark for more than thirty (30) years, and the circumstances of the present case
do not compare to the above exceptional cases. 6
Sec. 1 of Rule 45 of the 1997 Rules of Civil Procedure provides that "a party may
appeal by certiorari, from a judgment of the Court of Appeals, by filing with the
Supreme Court a petition for certiorari, within fifteen (15) days from notice of
judgment or of the denial of his motion for reconsideration filed in due time . . . ."
This Rule however should not be interpreted as "to sacrifice the substantial right of
the appellant in the sophisticated altar of technicalities with impairment of the sacred
principles of justice." 7 It should be borne in mind that the real purpose behind the
limitation of the period of appeal is to forestall or avoid an unreasonable delay in the
administration of justice. Thus, we have ruled that delay in the filing of a notice of
appeal does not justify the dismissal of the appeal where the circumstances of the
case show that there is no intent to delay the administration of justice on the part of
appellant's counsel, 8 or when there are no substantial rights affected, 9 or when
appellant's counsel committed a mistake in the computation of the period of appeal,
an error not attributable to negligence or bad faith. 10
In the instant case, respondent filed his notice of appeal two (2) days later than the
prescribed period. Although his counsel failed to give the reason for the delay, we
are inclined to give due course to his appeal due to the unique and peculiar facts of
the case and the serious question of law it poses. In the now almost trite but still good
principle, technicality, when it deserts its proper office as an aid to justice and
becomes its great hindrance and chief enemy, deserves scant consideration. 11
Petitioner likewise contends that the appellate court erred in ruling that respondent's
cause of action has not prescribed since delegates to the Warsaw Convention clearly
intended the two (2)-year limitation incorporated in Art. 29 as an absolute bar to suit
and not to be made subject to the various tolling provisions of the laws of the forum.
Petitioner argues that in construing the second paragraph of Art. 29 private
respondent cannot read into it Philippine rules on interruption of prescriptive periods
and state that his extrajudicial demand has interrupted the period of
prescription. 12 American jurisprudence has declared that "Art. 29 (2) was not
intended to permit forums to consider local limitation tolling provisions but only to
let local law determine whether an action had been commenced within the two-year
period, since the method of commencing a suit varies from country to country." 13
Within our jurisdiction we have held that the Warsaw Convention can be applied, or
ignored, depending on the peculiar facts presented by each case. 14 Thus, we have
ruled that the Convention's provisions do not regulate or exclude liability for other
breaches of contract by the carrier or misconduct of its officers and employees, or
for some particular or exceptional type of damage. 15 Neither may the Convention be
invoked to justify the disregard of some extraordinary sort of damage resulting to a
passenger and preclude recovery therefor beyond the limits set by said
Convention. 16 Likewise, we have held that the Convention does not preclude the
operation of the Civil Code and other pertinent laws. 17 It does not regulate, much
less exempt, the carrier from liability for damages for violating the rights of its
passengers under the contract of carriage, especially if willful misconduct on the part
of the carrier's employees is found or established. 18
Respondent's complaint reveals that he is suing on two (2) causes of action: (a) the
shabby and humiliating treatment he received from petitioner's employees at the
San Francisco Airport which caused him extreme embarrassment and social
humiliation; and, (b) the slashing of his luggage and the loss of his personal effects
amounting to US $5,310.00.
While his second cause of action — an action for damages arising from theft or
damage to property or goods — is well within the bounds of the Warsaw
Convention, his first cause of action — an action for damages arising from the
misconduct of the airline employees and the violation of respondent's rights as
passenger — clearly is not.
Consequently, insofar as the first cause of action is concerned, respondent's failure
to file his complaint within the two (2)-year limitation of the Warsaw Convention
does not bar his action since petitioner airline may still be held liable for breach of
other provisions of the Civil Code which prescribe a different period or procedure for
instituting the action, specifically, Art. 1146 thereof which prescribes four (4) years
for filing an action based on torts.
As for respondent's second cause of action, indeed the travaux preparatories of the
Warsaw Convention reveal that the delegates thereto intended the two (2)-year
limitation incorporated in Art. 29 as an absolute bar to suit and not to be made
subject to the various tolling provisions of the laws of the forum. This therefore
forecloses the application of our own rules on interruption of prescriptive periods.
Article 29, par. (2), was intended only to let local laws determine whether an action
had been commenced within the two (2)-year period, and within our jurisdiction an
action shall be deemed commenced upon the filing of a complaint. Since it is
indisputable that respondent filed the present action beyond the two (2)-year time
frame his second cause of action must be barred. Nonetheless, it cannot be doubted
that respondent exerted efforts to immediately convey his loss to petitioner, even
employed the services of two (2) lawyers to follow up his claims, and that the filing
of the action itself was delayed because of petitioner's evasion.
In this regard, Philippine Airlines, Inc. v. Court of Appeals 19 is instructive. In this case
of PAL, private respondent filed an action for damages against petitioner airline for
the breakage of the front glass of the microwave oven which she shipped under PAL
Air Waybill No. 0-79-1013008-3. Petitioner averred that, the action having been filed
seven (7) months after her arrival at her port of destination, she failed to comply with
par. 12, subpar. (a) (1), of the Air Waybill which expressly provided that the person
entitled to delivery must make a complaint to the carrier in writing in case of visible
damage to the goods, immediately after discovery of the damage and at the latest
within 14 days from receipt of the goods. Despite non-compliance therewith the
Court held that by private respondent's immediate submission of a formal claim to
petitioner, which however was not immediately entertained as it was referred from
one employee to another, she was deemed to have substantially complied with the
requirement. The Court noted that with private respondent's own zealous efforts in
pursuing her claim it was clearly not her fault that the letter of demand for damages
could only be filed, after months of exasperating follow-up of the claim, on 13 August
1990, and that if there was any failure at all to file the formal claim within the
prescriptive period contemplated in the Air Waybill, this was largely because of the
carrier's own doing, the consequences of which could not in all fairness be attributed
to private respondent.
In the same vein must we rule upon the circumstances brought before us. Verily,
respondent filed his complaint more than two (2) years later, beyond the period of
limitation prescribed by the Warsaw Convention for filing a claim for damages.
However, it is obvious that respondent was forestalled from immediately filing an
action because petitioner airline gave him the runaround, answering his letters but
not giving in to his demands. True, respondent should have already filed an action at
the first instance when his claims were denied by petitioner but the same could only
be due to his desire to make an out-of-court settlement for which he cannot be
faulted. Hence, despite the express mandate of Art. 29 of the Warsaw Convention
that an action for damages should be filed within two (2) years from the arrival at the
place of destination, such rule shall not be applied in the instant case because of the
delaying tactics employed by petitioner airline itself. Thus, private respondent's
second cause of action cannot be considered as time-barred under Art. 29 of the
Warsaw Convention.
WHEREFORE, the assailed Decision of the Court of Appeals reversing and setting aside
the appealed order of the trial court granting the motion to dismiss the complaint, as
well as its Resolution denying reconsideration, is AFFIRMED. Let the records of the
case be remanded to the court of origin for further proceedings taking its bearings
from this disquisition.
SO ORDERED.